CENTRO AGRONOMICO TROPICAL DE INVESTIGACION Y ENSEÑANZA

PROGRAMA DE EDUCACION PARA EL DESARROLLO Y LA CONSERVACION

ESCUELA DE POSGRADO

INVESTMENT ANALYSIS OF INCORPORATING TIMBER TREES IN

LIVESTOCK FARMS IN THE SUB-HUMID TROPICS OF COSTA RICA.

Tesis sometida a la consideración de la Escuela de Posgraduados, Programa de Educación para el Desarrollo y la Conservación del Centro Agronómico Tropical de Investigación y Enseñanza, como requisito parcial para optar el grado de:

Magíster Scientiae

POR

JORGE LUIS CHAGOYA FUENTES

Turrialba, Costa Rica

2004

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Dedication To The Almighty for allow me to complete this important step in my life. My wife Bertha for her help, understanding in difficult times and unconditional love. Thank you very much my sweet heart. My little daughter Montserrat for her love and happiness. To My parents Pompeyo and Conchita for all their support and love.

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Acknowledgements

The author express his sincere thanks to: Tropical Agricultural Research and Higher Education Center (CATIE). Integrated Silvopastoral Approaches to Ecosystems Management financed by the Global Environment Facility (ID. PO72979). National Institute for Forestry, Agriculture and Livestock Research (INIFAP). México. National Council of Science and Technology (CONACYT). México M.A. José Gobbi and his wife Ph.D. Lourdes Analia Púgener for all their help, patience and friendship. The members of my committee; Ph.D. Muhammad Ibrahim and Ph.D. Guillermo Navarro for all their contributions in this research and friendship. Ph.D. Heriberto Román Ponce, Regional Manager CIRGOC-INIFAP. Livestock farmers of the region of Esparza, Costa Rica. M.Sc. Francisco Casasola, Coordinator of the Integrated Silvopastoral Approaches to Ecosystems Management Project in Costa Rica. M.Sc. William Vásquez, Manager of the Seeds Bank of CATIE. Ing. Alexander González, GIS expert of the GEF- Project in Costa Rica. Ing. Alvaro Vallejo, CATIE Forest Technician. Lic. Vilma Olgin, expert of the GEF- Project in Costa Rica. Sr. Luis Quiroz and Sr. Rigoberto Granados, operation personal of the GEF-Project in Costa Rica. Personal of the Agricultural and Livestock Bureau of Costa Rica.

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Index Page 1.- Introduction 1.1.- Problem definition 1 1.2.- Objectives 1.2.1.- General objective 3 1.2.2.- Specific objectives 3 1.3.- Hypothesis 3 2.- Literature review 2.1.- Livestock in Central America 4 2.2.- Silvopastoral Systems 5 2.3.- Interactions in Silvopastoral Systems with timber trees 7 2.3.1.- Tree-grass interactions 7 2.3.2.- Livestock-tree interactions 8 2.3.3.- Livestock-grass-tree-interactions 9 2.4.- Environmental Services 9 2.4.1.- Biodiversity 10 2.4.2.- Carbon Sequestration 11 2.4.2.- Water 11 2.5.- Timber market 12 2.6.- Economics of Silvopastoral Systems 13

2.6.1.- Capital and interest theory 13 2.6.2.- Interest rate theory 14 2.6.3.- Multiple use forest management theory 14 2.6.4.- Investment in Silvopastoral Systems with timber trees 16

3.- Methodology 3.1.- Study area 17 3.2.- Models of financial analysis 18 3.2.1.- Model definitions 18 3.3.- Sources of information 3.3.1.- Livestock component 19 3.3.2.- Timber component 20 3.4.- Model development 20 3.4.1.- Livestock and grassland maintenance costs 20 3.4.2.- Livestock prices for calve and young bulls 21 3.4.3.- Canopy shadow interactions with components of the SPS 21 3.4.4.- Estimation of timber production 22 3.4.5.- Estimation of PES 23 3.4.6.- Cash flows 24 3.4.7.- Sensitivity analysis 25 3.4.8.- Monte Carlo risk analysis 25 3.4.9.- Financial indicators 3.4.9.1.- Net Present Value 26 3.4.9.2.- Land Expected Value 27 3.4.9.3.- Internal Rate of Return 28 3.4.9.4.- Benefit-Cost ratio 28 3.4.10.- Results presentation 29

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4.- Results 4.1.- Model 1 Timber trees in fences. 4.1.1.- Model description 30

4.1.2.- Establishment costs 30 4.1.3.- Operating costs 31 4.1.4.- Wood production and income from the timber component 31 4.1.5.- Financial analysis 4.1.5.1.- NPV, LEV, IRR, B/C results 32 4.1.5.2.- PES effect on investment profitability 33

4.1.5.3.- Sensitivity analysis 34 4.1.5.4.- Risk analysis 35

4.2.- Model 2 Timber trees under natural regeneration in native grassland

4.2.1.- Model description 36 4.2.2.- Establishment costs 36 4.2.3.- Operating costs 37 4.2.4.- Wood production and income from the timber component 37 4.2.5.- Financial analysis

4.2.5.1.- NPV, LEV, IRR, B/C results 38 4.2.5.2.- PES effect on investment profitability 39

4.2.5.3.- Sensitivity analysis 40 4.2.5.4.- Risk analysis 41

4.3.- Model 3 Changing from degraded land to tacotal enriched with timber trees 4.3.1.- Model description 42 4.3.2.- Establishment costs 42 4.3.3.- Operating costs 43 4.3.4.- Wood production and income from the timber component 43 4.3.5.- Financial analysis 4.3.5.1.- NPV, LEV, IRR, B/C results 44

- 4.3.5.2.- PES effect on investment profitability 45 4.3.6.- Model 3a Changing from degraded land to tacotal without timber trees 46 4.3.6.1.- PES effect on investment profitability 47

4.4.- Model 4 Timber trees in improved grasslands at perpetuity

4.4.1.- Model description 48 4.4.2.- Establishment costs 48 4.4.3.- Operating costs 49 4.4.4.- Wood production and income from the timber component 49 4.4.5.- Financial analysis

- 4.4.5.1.- NPV, LEV, IRR, B/C results 50 - 4.4.5.2.- PES effect on investment profitability 51 - 4.4.5.3.- Sensibility analysis 52 - 4.4.5.4.- Risk analysis 53

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5.- Discussion 56

5.1.- Model 1, Timber trees in fences 56 5.2.- Model 2, Timber trees under natural regeneration in native grassland 56 5.3.- Model 3, Changing land use from degraded land to tacotal 57 5.3.1.- Model 3a, changing from degraded land to tacotal without

timber trees 57 5.4.- Model 4, Timber trees in improved grasslands at perpetuity 58

6.- Conclusions 59 7.- Bibliography 60 8.- Appendix 68

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Chagoya F, J.L. 2004. Investment analysis of incorporating timber trees in livestock farms in the sub-humid tropics of Costa Rica. Tesis Mag.Sc., CATIE, Turrialba, Costa Rica. 93p.

Key words: Ex-ante benefit analysis, Financial Analysis, Wood production, Cedrela odorata , Silvopastoral Systems, NPV, LEV, IRR, B/C ratio.

SUMMARY

An ex-ante benefit cost analysis was developed with the objective to explore the financial feasibility

of incorporating timber trees under different arrangements in livestock farms in the Central Pacific

Region of Costa Rica. The models were: 1) timber trees in fences, 2) timber trees under natural

regeneration in natural grassland with fattening livestock, 3) land use change from degraded

grassland to secondary regeneration forest, and 4) timber trees in a perpetual silvopastoral system in

improved grassland with fattening livestock. The timber component was C. odorata L. A payment

for environmental services was considered. The value of the land was estimated at 1,918 USD, and

the discount rate applied was 6.56%. NPV, IRR, B/C ratio, and LEV were calculated. A cash flow

and sensitive and risk analysis were conducted for each model. Model 1 results were NPV 275

USD, IRR 10.6%, B/C 2.3, and LEV 2,698 USD. The investment showed high sensitivity to

changes in the discount rate. The risk analysis indicated high likelihood of failure (52.36% ) for the

investment when risk was applied to beef price. Model 2 results were NPV 352 USD, IRR 12.9%,

B/C 2.5, and LEV 1,325 USD. LEV was highly sensitivity to changes in discount rates and wood

prices. The investment was highly risky . Model 3 resulted in NPV –401 USD, B/C 0.42, and LEV

-99 USD. Model 4 results showed an NPV 5,045 USD, IRR 3.6%, and LEV 1,937 USD. The

investment showed high sensitivity to changes in discount rates and wood prices. When risk was

applied to beef price, the investment showed a low likelihood of success (37.5% for NPV and

41.3% for LEV, respectively). For all investments, there was a negative net flow in the first years in

comparison with the net cash flow in the situation “without the project”. PES contributed to

improve the financial indicators. However, its contribution to the incremental flow was marginal.

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Chagoya F, J.L. 2004. Análisis de inversión en la incorporación de árboles maderables in fincas ganaderas en el Trópico Sub-húmedo de Costa Rica. Tesis Mag.Sc., CATIE, Turrialba, Costa Rica. 93p.

Palabras clave: Ex-ante análisis, Análisis financiero, Producción de madera, Cedrela odorata , Sistemas silvopastoriles, VAN, VET, TIR, relación B/C.

RESUMEN

Un análisis ex-ante de beneficio costo fue realizado con el objetivo de explorar la viabilidad

financiera en la incorporación de árboles maderables bajo diferentes arreglos en fincas ganaderas de

la zona Pacífico Central de Costa Rica. Los modelos fueron: 1) árboles maderables en cercas 2)

árboles maderables bajo regeneración natural in pasturas naturales con terneros en engorde, 3)

cambio de uso de suelo de pastura degradada a regeneración secundaria, 4) -árboles maderables a

perpetuidad en pasturas mejoradas con terneros en engorde. El componente forestal fue C. odorata

L. Un pago por servicios ambientales (PSA) fue considerado. El valor promedio de la tierra en la

zona fue estimado a 1,918 USD. La tasa de descuento aplicada fue 6.56%. Fueron estimados el

VAN, TIR, relación B/C y VET. El Modelo 1 presento un VAN 275 USD, TIR 10.6%, B/C 2.3 y

VET 2,698 USD. La inversión presento alta sensibilidad a cambios en la tasa de descuento. El

análisis de riesgo indico una alta probabilidad de fracaso (52.36%) cuando se aplico riesgo al precio

de la carne. El Modelo 2 reporto un VAN 352 USD, TIR 12.89%, B/C 2.5 y VET 1,325 USD. El

VET indico alta sensibilidad a la tasa de descuento y precio de la madera. La inversión en general

presento un alto riesgo. El Modelo 3 mostró un VAN - 401 USD, B/C 0.42, y VET -99 USD. El

Modelo 4 presentó un VAN 5,045 USD, TIR 3.64, y VET 1,937 USD. La inversión presento alta

sensibilidad a cambios en la tasa de descuento y en precio de la madera. Cuando el riesgo es

aplicado al precio de la carne la inversión presenta un 37.5% y un 43.2% de probabilidades de éxito

para VAN y VET, respectivamente. En todas las inversiones, el análisis del flujo de caja indico un

flujo neto negativo en los primeros años en comparación con el flujo de caja en la situación “sin el

proyecto”. El PSA contribuye a incrementar los indicadores financieros. Sin embargo, su

contribución en el flujo de caja incremental fue marginal.

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Tables index Page Table 1.- Basic information about Central American countries and livestock

activities. 4 Table 2.- Potential to adopt Silvopastoral Systems for different social groups in

Latin America. 6 Table 3.- Number of species and individuals for different taxa sampled in 10,000 ha of

fragmented landscapes of Rivas, Nicaragua and Cañas, Costa Rica. 11 Table 4.- Models designed with timber trees in SPS according to farmer’s opinion.

Esparza, Costa Rica. 2004. 19 Table 5.- Annual maintenance costs of livestock and grassland components, Esparza,

Costa Rica. 2004. 20 Table 6.- Sale prices and sale weights for the livestock component in the models. Esparza, Costa Rica. 2004. 21 Table 7.- Equations for modelling growth of Cedrela odorata used with the Software Silvia ? ,

Esparza, Costa Rica. 2004. 22 Table 8.- Initial and final densities, and years to final turn used in the model to estimate

growth of Cedrela odorata , with the Software Silvia ? , CATIE, Turrialba, Costa Rica. 2004. 23

Table 9.- Computation of the PES following the methodology developed by the

GEF-Project, Esparza, Costa Rica. 2004. 24 Table 10.- Establishment costs for 132 timber trees in 400 m of existing living fences

(3 m between the trees). Esparza. Costa Rica. 2004. 30 Table 11.- Model 1, operation costs of 132 timber trees in 400 m of existing living fences

(3 m between the trees). Esparza, Costa Rica. 2004. 31 Table 12.- Total timber production at final turn under three different quality sites.

Sixty-six timber trees surrounding one hectare of improved grassland. Esparza, Costa Rica. 2004. 31

Table 13.- Site quality effect on investment profitability. Model 1, timber trees in 400 m of

existing living fences. Esparza, Costa Rica. 2004. 32 Table 14.- PES estimation for Model 1, timber trees in 400 m of existing living fences.

Esparza, Costa Rica. 2004. 33 Table 15.- PES effect on investment profitability. Model 1, timber trees in 400 m of existing

living fences. Esparza, Costa Rica. 2004. 33 Table 16.- Sensitivity analysis, discount rate effect on financial indicators. Model 1, timber

trees in 400 m of existing living fences. Esparza, Costa Rica. 2004. 34

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Table 17.- Sensitivity analysis, wood price effects on financial indicators. Model 1, timber

trees in 400 m of existing living fences. Esparza, Costa Rica. 2004. 34 Table 18.- Establishment costs of 200 timber trees under natural regeneration in

one ha of native grassland. Esparza, Costa Rica. 2004. 36 Table 19.- Operation costs of 200 timber trees under natural regeneration in a native grasslands with two fattening calves. Esparza, Costa Rica. 2004. 37 Table 20.- Model 2, timber trees under natural regeneration in native grassland with

two fattening calves. Total timber production at final turn (25 years) under three different site quality. Esparza, Costa Rica. 2004. 37

Table 21.- Site quality effect on investment profitability. Model 2, timber trees under

natural regeneration in native grassland with two fattening calves. Esparza, Costa Rica. 2004. 38

Table 22.- PES estimation for Model 2, timber trees under natural regeneration in

native grassland with two fattening calves. Esparza, Costa Rica, 2004. 39 Table 23.- PES effect on investment profitability. Model 2, timber trees under natural

regeneration in native grassland with two fattening calves. Esparza, Costa Rica. 2004. 39

Table 24.- Model 2, timber trees under natural regeneration in native grassland with two

fattening calves. Sensitivity analysis, discount rate effect on financial indicators. Esparza, Costa Rica. 2004. 40

Table 25.- Model 2, timber trees under natural regeneration in native grassland with two

fattening calves. Sensitivity analysis, wood price effects on financial indicators. Esparza, Costa Rica. 2004. 40

Table 26.- Establishment costs of 400 timber trees of C. odorata in one hectare of

degraded grassland. Esparza, Costa Rica, 2004. 43 Table 27.- Operation costs of 400 timber trees of C. odorata in one hectare of degraded

grassland. Esparza, Costa Rica. 2004. 43 Table 28.- Total timber production and incomes generated at final turn (27 years) by

100 trees of C. odorata in a tacotal enriched. Esparza, Costa Rica. 2004. 43 Table 29.- Investment profitability. Model 3, one hectare of degraded grassland was changed

to tacotal enriched with timber trees of C. odorata. Esparza, Costa Rica. 2004. 44

Table 30.- PES estimation form Model 3, one hectare of degraded grassland was changed to tacotal enriched with timber trees of C. odorata . Esparza, Costa Rica. 2004. 45

Table 31.- PES effect in financial indicators. Model 3, one hectare of degraded grassland

was changed to tacotal enriched with timber trees of C. odorata . Esparza, Costa Rica. 2004. 46

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Table 32.- PES effect on investment profitability. Model 3a, change land use from degraded

grassland to tacotal without timber trees. Esparza, Costa Rica. 2004. 47 Table 33.- Establishment costs of 20 timber trees of C. odorata in one hectare of

B. brizantha. Esparza, Costa Rica. 2004. 49 Table 34.- Operation costs of 20 timber trees C. odorata planted in one hectare of

B. brizantha with three fattening calves. Esparza, Costa Rica. 2004. 49

Table 35.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted every three years in one hectare of B. brizantha with three fattening calves. Total timber production of one rotation at final turn (25 years) under three different site quality. Esparza, Costa Rica. 2004. 50

Table 36.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. Site quality effect on investment profitability. Esparza, Costa Rica. 2004 50

Table 37.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. Site quality effect on investment profitability under LEV perspective. Esparza, Costa Rica. 2004. 50

Table 38.- PES estimation for Model 4, SPS with perpetual timber rotation. Twenty trees of

C. odorata were planted every three years in one hectare of B. brizantha with three fattening calves. Esparza, Costa Rica. 2004. 51

Table 39.- PES effect on investment profitability. Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted every three years in one hectare of B. brizantha with three fattening calves. Esparza, Costa Rica. 2004. 52

Table 40.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. Brizantha with three fattening calves. Sensitivity analysis discount rate effect on investment profitability. Esparza, Costa Rica. 2004. 53

Table 41.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. Sensitivity analysis, wood price effects on investment profitability indicators. Esparza, Costa Rica. 2004. 53

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Figures index Page Figure 1.- Study area location, Esparza, Puntarenas, Costa Rica, CA 18 Figure 2.- Model 1, design of the timber trees in an existing living fence. Esparza, Costa Rica. 2004. 30 Figure 3.- Net cash flows, situation with vs without project. Model 1, timber trees

in 400 m of existing living fences. Esparza, Costa Rica. 2004. 32 Figure 4.- PES effect on discounted cash flow, comparison with vs without PES. Model 1,

timber trees in 400 m of existing living fences. Esparza, Costa Rica. 2004. 33 Figure 5.- Model 1, timber trees in 400 m of existing living fences. Risk analysis,

distribution for Net Present Value (NPV) applying risk in wood price. Esparza, Costa Rica. 2004. 35

Figure 6.- Model 1, timber trees in 400 m of existing living fences. Risk analysis,

distribution of Land Expected Value (LEV) applying risk in beef price. Esparza, Costa Rica. 2004. 35

Figure 7.- Model 2, design of the timber trees under natural regeneration in a native

grassland. Esparza, Costa Rica, 2004. 36 Figure 8.- Net cash flows, situation with vs without project. Model 2, timber trees under

natural regeneration in native grassland with two fattening calves. Esparza, Costa Rica. 2004. 38

Figure 9.- PES effect on discounted cash flow, comparison with vs without PES. Model 2,

timber trees under natural regeneration in native grassland with two fattening calves. Esparza, Costa Rica. 2004. 39

Figure 10.- Model 2, timber trees under natural regeneration in native grassland with two

fattening calves. Risk analysis, distribution for Net Present Value (NPV) applying risk in beef price. Esparza, Costa Rica. 2004. 41

Figure 11.- Model 2, timber trees under natural regeneration in native grassland with two

fattening calves. Risk analysis, distribution of Land Expected Value (LEV) applying risk in wood price. Esparza, Costa Rica. 2004. 41

Figure 12.- Model 3, design of the tacotal enrichment with timber trees in degraded

grassland. Esparza, Costa Rica. 2004 42 Figure 13.- Model 3,. one hectare of degraded grassland was changed to tacotal enriched

with timber trees of C. odorata Discounted incremental cash flow. Esparza, Costa Rica. 2004. 44

Figure 14.- Model 3, one hectare of degraded grassland was changed to tacotal enriched

with timber trees of C. odorata . Net cash flows comparison, “without” vs “with project”. Esparza. Costa Rica. 2004. 45

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Figure 15.- Model 3, land use change from degraded pastures to tacotal enriched with

timber trees. PES effect in discounted cash flow, comparison “with” vs “without PES”. Esparza, Costa Rica. 2004. 46

Figure 16.- Model 3a, land use change from degraded pasture to tacotal without timber

trees. PES effect in discounted cash flow. Esparza, Costa Rica. 2004. 47 Figure 17.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. For each rotation, thinnings were developed in years eight and fifteen, and the final turn was in year twenty five. Esparza, Costa Rica. 2004. 48

Figure 18.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. One rotation net cash flows, comparison “with” vs “without project”. Esparza, Costa Rica. 2004. 51

Figure 19.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. PES effect in discounted cash flows. Esparza, Costa Rica. 2004. 52

Figure 20.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. Investment risk analysis, distribution for Net Present Value (NPV) applying risk in beef price. Esparza, Costa Rica. 2004. 54

Figure 21.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. Investment risk analysis, distribution for Net Present Value (NPV) applying risk in wood price. Esparza, Costa Rica. 2004.. 54

Figure 22.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. Investment risk analysis, distribution for Land Expected Value (LEV) applying risk in beef price. Esparza, Costa Rica. 2004. 55

Figure 23.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. Investment risk analysis, distribution for Land Expected Value (LEV) applying risk in wood price. Esparza, Costa Rica. 2004. 55

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8.- Appendix index Page 9.1.- Annual maintenance costs for natural grassland (1 hectare). 68 9.2.- Annual maintenance costs for improved grassland (1 hectare). 68 9.3.- Annual maintenance costs for degraded grassland (1 hectare). 68 9.4.- Annual maintenance costs for a weaning calve in a fattening livestock production system (from 150 to 350 kg). 69 9.5.- Livestock prices from the auction AGAINPA (Pacific Zone Independent Livestock Association). Period January – September 2004. 70 9.5a .- Livestock prices from the auction AGAINPA (Pacific Zone Independent Livestock Association). Period January-September. Continue…. 71 9.6.- Land use index in used by the GEF-Project to pay for Environmental Services. 72 9.6a.- Costa Rican Forest Chamber (wood prices). 73 9.7.- Timber component, establishment and maintenance costs of 132 timber trees in living fences. Esparza. Costa Rica. 2004. 74 9.8.- Timber production from 132 timber trees of C. odorata in fences according to bad, regular and good site quality. Esparza, Costa Rica. 2004. 75 9.9.- Cash flow and NPV, IRR and B/C estimation in Model 1, timber trees of C. odorata in fences. Esparza, Costa Rica. 2004. 76 9.9a.- Cash flow and NPV, IRR and B/C estimation in Model 1, timber trees of C. odorata in fences. Esparza, Costa Rica. 2004. Cont… 77 9.10.- Cash flow and LEV estimation in Model 1, timber trees of C. odorata in fences. Esparza, Costa Rica. 2004. 78 9.11.- Timber component, establishment and maintenance costs of 200 timber trees from natural regeneration in a native grassland. Esparza. Costa Rica. 2004. 79 9.12.- Timber production from 50 timber trees of C. odorata under natural regeneration in native grassland, according to bad, regular and good site quality. Esparza, Costa Rica. 2004. 80 9.13.- Cash flow and NPV, IRR and B/C estimation in Model 2, timber trees of C. odorata under natural regeneration. Esparza, Costa Rica. 2004. 81 9.13a.- Cash flow and NPV, IRR and B/C estimation in Model 2, timber trees of C. odorata under natural regeneration. Esparza, Costa Rica. 2004. 82 9.14.- Cash flow and LEV estimation in Model 2, timber trees of C. odorata from natural regeneration in native grassland. Esparza, Costa Rica. 2004. 83

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9.15.- Timber component, establishment and maintenance costs of 400 timber trees of C. odorata in a degraded grassland. Esparza. Costa Rica. 2004. 84 9.16.- Wood production from a tacotal enrichment with 100 timber trees of C. odorata . Esparza, Costa Rica. 2004. 85 9.17.- Cash flow and NPV, IRR and B/C estimation in Model 3, tacotal enrichment with 100 timber trees of C. odorata . Esparza, Costa Rica. 2004. 86 9.17a.- Cash flow and NPV, IRR and C/B estimation in Model 3, tacotal enrichment with 100 timber trees of C. odorata. Esparza, Costa Rica. 2004. Cont… 87 9.18.- Cash flow and LEV estimation in Model 3, tacotal enrichment with 100 timber trees of C. odorata . Esparza, Costa Rica. 2004. 88 9.19.- Timber component, establishment and maintenance costs for 20 timber trees of C. odorata in improved grassland. Esparza. Costa Rica. 2004. 89 9.20.- Timber production from 5 timber trees of C. odorata in an improved grassland. Esparza, Costa Rica. 2004. 90 9.21.- Cash flow and NPV, IRR and B/C estimation in Model 4, improved grasslands with timber trees of C. odorata at perpetuity. Esparza, Costa Rica. 2004. 91 9.21a.- Cash flow and NPV, IRR and B/C estimation in Model 4, improved grasslands with timber trees of C. odorata at perpetuity. Esparza, Costa Rica. 2004. Cont…92 9.22.- Cash flow and LEV estimation in Model 4, improved grasslands with timber trees of C. odorata at perpetuity. Esparza, Costa Rica. 2004. 93

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Abbreviation and acronym list @Risk Risk Analysis Software ADF Acid Detergent Fiber AGAINPA Pacific Zone Independent Livestock Association AU Animal Unit B/C ratio Benefit-Cost ratio bdh Breast High Diameter C Carbon oC Centigrade CATIE Tropical Agricultural Research and Higher Education Center Cm Centimeter CO2 Carbon dioxide CONIF Corporación Nacional de Investigación y Fomento Forestal CP Crude Protein DM Dry matter EAI Equivalent Annual Income FAO Food and Agriculture Organization of the United Nations GEF Global Environment Facility ha Hectare hr Hour i.e. id est IRR Internal Rate of Return ITTO International Tropical Timber Organization kg Kilogram km2 Square kilometer LER Land Equivalent Ratio LEV Land Expected Value MCA Monte Carlo Risk Analysis mm Millimeter m3 Cubic meter m.a.s.l. Meters Above the Sea Level NDF Neutral Detergent Fiber NPV Net Present Value OIMT Organización Internacional de las Maderas Tropicales PASTOR Pasture and Livestock Technical Coefficients Generator PES Payment for Environmental Services SA Sensitivity Analysis SDI Social Development Index Silvia Forest Management System software SPS Silvopastoral Systems SWC Soil Water Content TNSC Total Non-Structural Carbohydrates ton Tone USA United States of America USD United States Dollar vs Versus

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1.- Introduction 1.1.- Problem definition Livestock in Central America is facing an unprecedented challenge (Pérez 2000; Pomareda 2000). Low profitability of

traditional livestock production systems, lack of diversification of productive activities, degradation of land, poor

organization of livestock farmers, high cost of capital, absence of soft credits, and lack of government extension services,

among others, place livestock farmers in a difficult socioeconomic situation (Kaimowitz 1996; Pezo and Ibrahim 1998;

Szott et al. 2000). Studies in the 1980s and 1990s showed that when profitability was calculated using full opportunity

costs for land, capital and labor, and without including capital gains from rising land prices, cattle production was not

profitable for most farmers during this period (Kaimowitz 1996; Gobbi and Ibrahim 2004). Pomareda (2000) and Szott et

al. (2000) indicate that the mentioned situation persists today, and that livestock farms are operating under low profitability

conditions.

There are several strategies to confront the situation facing livestock farms indicated above (Murgueitio and Ibrahim 2000).

One of them is the implementation of silvopastoral systems, since silvopastoral systems with timber trees have the

potential to diversify farms incomes and to improve their profitability (Reiche 1991; Russo 1994; Somarriba 1997; Pezo

and Ibrahim 1998; Beer et al. 2000; Pomareda 2000; Ibrahim and Camargo 2001). Types of production systems are

designed with the following objectives: (1) to lower external inputs for feeding animals by using protein banks (Leucaena

leucocephala (Lam.) De Wit., Cratylia argentea (Desv.) O. kuntze., Morus alba L.) or multipurpose trees (Guazuma

ulmifolia Lam., E. cyclocarpum (Jacq.) Griseb., Gliricidia sepium (Jacq.) Standl.), (2) to diversify production with the

introduction of timber trees in grasslands, and (3) to generate environmental services for sale such as protection of

watersheds, reduction of greenhouse gas emissions, reduction of soil erosion, and increase of biodiversity (Pezo and

Ibrahim 1998; Murgueitio and Ibrahim 2000; Harvey 2001; Harvey et al. 2004). Livestock farms in tropical zones have a

high potential for timber production incorporating trees in silvopastoral systems (Ibrahim and Camargo 2001) Production

of fine tropical timber trees such as Dalbergia retusa Hemsl., Cedrella odorata L., Swietenia macrophylla king., Tectona

grandis L., Tabebuia rosea (Vertol.) D.C., Samanea saman (Jacq.) Merril., Tabebuia ochracea (Cham.) Standl.,

Platymiscium pinnatum (Jacq.) Dugand., Enterolobium cyclocarpum (Jacq.) Griseb., Bombacopsis quinatum (Jacq.)

Dugand., Peltogyme purpurea Pittier., Astronium graveolens Jacquin., and Cordia alliodora (R. & P.) Oken, have a good

potential in tropical zones (Holdridge et al. 1997), and a good perspective in the regional, national, and international

markets (Tomberlin and Buongiorno 2001; OIMT 2002).

Production diversification with timber trees in livestock farms located in the tropics is possible because the forestry

potential of the land is elevated, since until few years ago all of this land was cover with natural forest (Kaimowitz 1996;

Sánchez 2000). Therefore, the development of silvopastoral systems with timber trees represent an opportunity to diversify

production in livestock farms and to increase their incomes (Russo 1994; Pomareda 2000; Szott et al. 2000).

Income generated from timber trees has shown to increase livestock farms profitability (Dangerfield Junior and Harwell

1990; Reiche 1991; Marlats et al. 1995; Pomareda 2000). In Costa Rica, prices of tropical woods (fine; hard; semi-hard

and soft woods) have increased in real terms during the last 25 years (Howard 1995), which represents an opportunity to

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generate a product that is competitive in the regional, national and international markets (Tomberlin and Buongiorno 2001;

OIMT 2002).

This study addresses the following question: is the investment in silvopastoral systems with timber trees in the current

conditions for livestock farmers profitable? The prime objective of this work is to conduct an ex-ante benefit-cost analysis,

and to explore if the incorporation of timber trees with different arrangements in livestock farms is profitable in the Tropic

Sub-humid region of Costa Rica. In addition, the study explores if a payment for environmental services is sufficient to

make the investment in timber trees profitable, and assesses the level of risk associated with such an investment.

1.2.- Objectives

1.2.1.- General objective

To explore the financial feasibility of incorporating Silvopastoral Systems with timber trees under different arrangements

in livestock farms in the Sub-humid Tropics of Costa Rica.

1.2.2.- Specific objectives

To determine farmer’s choices regarding the type of Silvopastoral Systems with timber trees to incorporate in their

livestock farms.

To determine establishment and operating costs of the following Silvopastoral Systems with timber trees: trees in fences,

trees under natural regeneration, and trees in pastures.

To estimate the financial feasibility of investing on those Silvopastoral Systems with timber trees.

69

To estimate the effect of the Payment for Environmental Services developed by the GEF-Project on the viability of the

investment.

1.3.- Hypotheses

Investing in the incorporation of Silvopastoral Systems with timber tree under different arrangements in livestock farms of

Esparza, Costa Rica is financially profitable.

A Payment for Environmental Services is needed to make the investment financially feasibly.

2-. Literature review

2.1.- Livestock in Central America The future panorama for livestock and investment-dependent improvements in grazing systems in Central America is

decidedly cloudy (Szott et al. 2000). Profit margins have shrunk and there is little national or international support for

activities that are perceived as environmentally destructive and inefficient in terms of employment generation and resource

use. Moreover, low international prices of livestock are expected to continue, which will make it hard for low productivity

grazing systems to compete with other export orientated systems for land and capital (Pomareda 2000; Szott et al. 2000). In

the absence of stimuli to adopt improvement alternatives, many cattle producers are likely to continue the status quo,

banking on the future appreciation in the value of land as it grows more scarce (Leon 1994).

On the other hand, livestock systems have relevant socio-economic importance in the Central American Region. In Central

America, livestock systems occupy 13.5 million hectares (27% of all the land) with 10 million heads of cattle distributed

over 400 thousand farms (Pérez 2000). Table 1 shows this information distributed in the countries of Central America.

Table 1.- Basic information about Central American countries and livestock activities.

Concepts GUA ES HON NIC CRC PAN CA Land Total land (x 106 ha) 10.9 2.1 11.2 13.0 5.1 7.6 49.9 Grasses (%) 24 28 14 37 31 20 27 Forests (%) 48 5 54 25 31 43 39 Population Total (x 106 ha) 10.2 5.8 5.8 4.2 3.5 2.6 32.1 Birth rate (%) 2.3 1.9 2.6 2.4 2.3 1.7 Density (hab./km2) 94 277 52 36 69 35 64 Income Per capita (US$) 991 1,295 660 498 2063 2,699 1,368

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Livestock Total ( x 1000) 2,055 1,200 2,315 1,645 1,594 1,362 10, 316 Farms with livestock (x 1000)

30 64 100 108 38 39 379

Head/ha. 0.8 2.0 1.5 0.3 1.0 0.9 0.8 Human/livestock relationship

5.0 4.3 2.5 2.6 2.2 1.9 3.1

GUA= Guatemala, ES= El Salvador, HON= Honduras, NIC= Nicaragua, CRC= Costa Rica, PAN= Panama, CA= Central America. Source: Pomareda 2000. Livestock farmers will be the new foresters in this millennium (Ibrahim 1997). This assertion is the result of several current

situations. On one hand, economical crisis in typical livestock systems in Central America caused by low prices of milk

and beef, along with the elimination of subsidies, and pasture degradation, have led livestock farmers to search for other

production systems to diversify their incomes. On the other hand, increments in real terms of the price in tropical woods

(consequence of tropical forest depletion), restrictions in the market for natural forest wood, and government incentives for

reforestation and development of the sawmill industry, represent an interesting opportunity in producing fine tropical

woods in livestock farms in order to help improving their economical situation (Howard 1995; Ibrahim 1997; Sánchez

2000). In fact, there is a high demand of wood production in Central America coming from natural regeneration in

silvopastoral systems (Ibrahim 1997).

2.2.- Silvopastoral Systems

Silvopastoral Systems (SPS) are a production option in livestock farms. In SPS, the woody perennial species interact with

grasses and livestock with the objective to increase their long-term productivity with sustainable management (Ibrahim

1997). In other words, SPS are complex biological structures which combine long-term production from forest products

(timber and fuel-wood) and short-term production from animals (fodder, meat, milk and wool) (Anderson and Sinclair

1993).

Several SPS have been developed in Latin America. The SPS include: 1) trees in pastures, 2) silvopastoral system with

managed succession, 3) livestock grazing in forest plantations, 4) grazing in fruit plantations, 5) living fences, 6) boundary

trees, 7) alley farming, 8) wind brakes, 9) high tree-density silvopastoral systems, 10) cut-and-carry systems (protein

banks), and 11) energy banks (Somarriba 1997; FAO 2000; Murgueitio and Ibrahim 2000). Table 2 shows the potential to

adopt SPS for different social groups in Latin America. Their incorporation in livestock farms is related not only with

agroecological (soil, precipitation, wind, topography, etc.) but also with socioeconomic conditions (farmer’s age, land

tenure, capital cost, labor costs, environmental culture, among others) (Russo 1994; Somarriba 1997; FAO 2000;

Murgueitio and Ibrahim 2000; Sánchez 2000; Ibrahim and Camargo 2001). An example of SPS will be a pasture with

dispersed timber trees such as T. grandis, S. macrophylla, C. odorata, C. alliodora, and T. rosea. In these systems, the

farmer will produced milk and beef, along with timber wood (Russo 1994; FAO 2000). It is important to consider that the

Central American’s region has thirteen million of hectares with extensive grasslands and all this land has the potential to

implement SPS (Dagand and Nair 2001).

Table 2.- Potential to adopt Silvopastoral Systems for different social groups in Latin America.

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Social Group Silvopastoral

System Forest Enterprises

Small producers

Medium and Large farmers

Farmers without land

Trees in pastures None Limited High None SPS with managed succession

Low Low Very High Indirect benefits, (firewood, wood, fruit)

Livestock grazing in forest plantation

Very High Low Medium Temporal employment

Living Fences High Very High Very High Indirect benefits, (firewood, wood, fruit)

Alley Farming Medium Low Medium to High

Temporal employment and Indirect benefits

Wind brakes High were they are useful

Medium to High

High were they are useful

Indirect benefits

Grazing in fruit plantations

Medium to High Low to Medium

Low to Medium

Low employment opportunity

High tree-density SPS

Low Medium to High

High to Very High

Mean opportunity of employment

Cut-an-carry systems Low Very High Medium to High

Mean opportunity of employment

Fruit Harvest None Medium Medium to High-

High opportunity of employment

Source: FAO 2000. In addition, interest in the potential of timber trees on tropical farms has increased not only for diversifying and sustaining

productivity, but also for recovering degraded land, improving biodiversity, fixing atmospheric carbon, protecting

watersheds, making marginal lands productive, improving cash flow and reducing risk for farmers (Russo 1994; Somarriba

1997; Beer et al. 2000; Murgueitio and Ibrahim 2000; Pomareda 2000; Devendra and Ibrahim 2004; Pomareda 2004).

SPS have several advantages (Russo 1994; Somarriba 1997; Botero 2000; Ibrahim and Camargo 2001; Devendra and

Ibrahim 2004). They are: 1) reducing risk through productive diversification; 2) diversifying food production with forage

trees for animals; 3) producing firewood, wood for construction and posts in the farm; 4) controlling weeds in forest

plantations; 5) reducing the risk of fire; 6) providing comfort for livestock; 7) improving beef and milk production; and 8)

producing environmental services such as, protecting watershed, reducing greenhouse gas emissions, reducing soil erosion

and increasing biodiversity. They also present certain disadvantages: 1) cows could increase soil compactation when

pastures are wrongly managed; 2) incorporation of trees in pastures may lower grass productivity under shade; 3) high

mortality of trees under natural regeneration when the pasture is overgrazed; 4) mechanical agricultural practices will be

affected (machinery will not work easily in pastures with high density of trees), and 5) implementation of silvopastoral

techniques requires knowledge and well personnel trained. In spite of these disadvantages, it is widely recognized that SPS

represent an environmentally friendly livestock production system.

2.3.- Interactions in Silvopastoral Systems with timber trees

SPS involve interactions among the different components in terms of space occupation (vertical and horizontal

stratification above and belowground), and resource allocation (light, water and nutrients) (Anderson and Sinclair 1993).

Following is a description of such interactions in SPS.

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2.3.1.- Tree-grass interactions

In SPS with timber trees, tree-grass interaction is important, because trees and grasses compete for light, water, and soil

nutrients (Ibrahim and Camargo 2001; Devendra and Ibrahim 2004). Numerous studies have shown that pasture

productivity under moderate levels of shade (canopy cover) increases or do not differ from that of pastures without trees.

For example, in a study developed with different densities of Populus deltoides Marsh. (625, 416, 312, 250 and 0 trees/ha),

and a mix pasture of Bromus unioloides, Lolium multiflorum, Paspalum dilatatum and Cynodon dactylon, the best

production of grass was with a density of 250 trees/ha (8 tons of dry matter (DM)/ha), and there was no statistical

differences in grass production when compared with the treatment without trees (Acciaresi et al. 1994). The integration of

Brachiaria humidicola and Acacia mangium with a density of 240 tree/ha increases the production of DM (1,834 vs 2,562

kg/ha/year) and improve concentration of crude protein (CP) in the grass (3.2% vs 4.6%) (Bolívar et al. 1999). Improved

pastures such as Cynodon nlemfuensis beneath the open shade of timber trees like C. alliodora did not have a statistical

difference (p > 0.05) in bio-mass production in comparison with full sun areas (11.2 vs 7.7 ton/ha/year) (Villafuerte et

al. 1999). Brachiaria brizantha produced 3,550 kg of DM/ha/year and Andropogon gayanus improved their percentage of

CP under moderate shade (416 trees/ha) of Sclerolobium paniculatum (Mochiutti and Lima 2000).

Canopy shadow seems to have no dramatic effect on the reduction of grass production. A research in Guapiles, Costa Rica,

mentions that reduction in forage yield was 23%, 30% and 39% for B. decumbens, B. brizantha, and Panicum maximun,

respectively, under natural shadow of A. mangium and Eucalyptus deglupta with a density of 370 trees/ha (Andrade et al.

2000; Andrade and Ibrahim 2001). Leaves of the grass Penisetum purpureum increase the percentage of CP (9.86 vs

7.97%), neutral detergent fiber (76.67 vs 74.87%), and acid detergent fiber (49.49 vs 38.37%) in situations under shade of

Enterolobium maximun versus full sun (Luis et al. 2001). Thinning intensities of 50% and 62% in forest plantations (initial

density 1,600 trees/ha) of Pinus elliottii improve the production of natural grass (Piptochaetium lasianthum) at a sufficient

level to establish an integrated system of forage and wood production (Plevich et al. 2002). In a study developed in Brazil,

B. decumbens showed low levels (p <0.05) of total non-structural carbohydrates but maintained it forage availability under

the isolated trees shadow of A. mangium, Acacia auriculiforimis and Albizia guachepele (Gomes et al. 2004). Another

research in the same country mentioned that B. brizantha had a production of 1,692; 3,616 and 2,547 kg DM/ha, under a

tree cover of 12%, 22% and 30%, respectively (Alvim et al. 2004). In Tabasco, México, B. humidicola, Brachiaria

dyctyoneura and Paspalum conjugatum improved their levels of CP under a forest plantation of C. odorata (1,100

trees/ha). However, production of DM decreased in B. dictyoneura, but P. conjugatum not presented statistical difference

(p >0.05) of DM production under shade, and full sun (1.24 vs 0.97 Mg DM/ha/harvest, respectively) (Aquino et al. 2004).

The information above indicates that under a moderate canopy shadow it is possible to produce forage of a good quality

and quantity.

Natural regeneration is a method to establish trees in pastures (Camargo et al. 2001; Camargo et al. 2004). Valuable timber

species, such as C. alliodora, C. odorata , Samanea saman, and A. guachepele , in low densities (4 to 15 trees/ha), are

common in pastures of the tropical lowlands (Barrios et al. 1999; Camargo et al. 2004). In Esparza, Costa Rica,

germination of C. alliodora was higher (28% vs 21%), and seedling mortality lower (55% vs 63%) in sites with cover of

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B. decumbens than in sites without cover. In grasslands with Hyparrhenia rufa, germination of C. alliodora was higher

with grass cover (8% vs 6%) but mortality was greater (83% vs 76%) (Camargo et al. 2001).

2.3.2.- Livestock-tree interactions

Livestock-tree interaction is also important in SPS because livestock could make some damages to the trees (Somarriba

1997; Ibrahim and Camargo 2001). Livestock can eat, trample, strip the bark and brake the young trees causing much

damage in the plantations or in the natural regeneration of timber trees (Somarriba 1997; Schlönvoigt and Ibrahim 2001).

For example, survival of seedlings of the timber specie Pithecolobium saman (Jacq.) in grasslands of H. rufa was evaluated

under three grazing intensities (normal 1.3, high 2.6 and very high 3.9 animal units (AU)/ha), on two tree growing places

(cow pats or directly in the soil). The results showed that when the grazing intensity increases (from 1.3 to 3.9 AU/ha), the

damage in the trees increase too (from 55% to 70% directly in the soil, and from 15% to 30% in cow pats, respectively).

Moreover, the trees growing in cow pats had less mortality (17% vs 56%) and better growth (8.5 cm vs 3.6 cm) than trees

growing directly in the soil (Barrios et al. 1999). In addition, it is possible to start grazing in a forest plantation of

Eucalyptus saligna when it is nine months old, producing 455 kg/ha of beef in the first two years (da Silva et al. 2000).

SPS will be established immediately or after twenty-two months of planting the trees, depending on the method of tree

protection (with wire fence or without grazing) and fast growing rate of the tree specie used (i.e. E. grandis and A.

mangium) (Carvalho et al. 2001). Those experiences indicate that it is possible to establish a SPS with timber trees, if

grazing intensity, timber tree selected, timber tree care, and grassland management are the correct ones.

2.3.3.- Livestock-grass-tree interactions

The interaction of livestock-grass-tree is more complex than the previously described interactions, because it encompasses

the three components. Livestock-tree-grass interactions can be positive or negative. For example a research in the

Argentine Chaco showed that the damage in natural regeneration of valuable timber tree species (Schinopsis balansae,

Prosopis nigra, Geoffroea decorticans) was reduced in grasslands with livestock grazing management (48%) versus

without management (65%) (Simón et al. 1998). Another study in Costa Rica mentioned that dairy cows had a better milk

production (p<0.05), a lower respiration rate (p< 0.01), and a grater DM intake (p<0.05) under natural shade of C.

alliodora and C. odorata, Ficus spp and Citrus sinensis than under the full sun (Abreu de Souza et al. 2004). Management

of the different components of the SPS help to reduce the negative interactions among them, and to increase the positive

ones.

2.4.- Environmental Services

The most common Environmental Services (ES) recognized are the services derived from natural ecosystems and

agricultural-ecosystems to the society such as watersheds protection, carbon sequestration, and improved biodiversity.

There is a current trend in CA to recognize and financially compensate the providers of those services (World Bank 2002).

The payment for ES could impact directly and indirectly in the protection and improvement of the environment, and

improve people’s quality of live (CONABISAH 2004).

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2.4.1.- Biodivers ity

SPS provide habitats, connectivity, and resources that make possible the persistence of some plant and animal species

within the fragmented landscape, thereby partially mitigating the negative impacts of deforestation and habitat

fragmentation (Harvey et al. 2004). A wide variety of animals (insects, birds, bats, and other mammals) use SPS for

several objectives such as food, shelter, protection against predators or adverse weather conditions, and as biological

corridors (Harvey 2001; Harvey et al. 2004). One research in Yucatan, México compares the biodiversity of a grassland

monoculture versus a SPS in natural regeneration. Results indicate that one specie was found in the monoculture grassland,

while 89 species of plants were founded in SPS, 34 of them were of the Leguminosae, 5 of Rubiaceae, 4 of Compositae

families, and the rest (46 species) belonged to 27 different families (Morales et al. 2001). Another research in Nicaragua

identifies 60 species of trees in different SPS: pastures with low density of trees (< 30 adult trees/ha) 10 species; pastures

with high density of trees (> 30 trees/ha) 10 species; pastures with oak trees (Quercus spp) 5 species; scrub vegetation 7.5

species and forest 11.5 species (Casasola et al. 2001). The results indicated that SPS are quite similar to forest in terms of

species numbers.

A research compares the abundance and species richness of trees, birds, bats, butterflies, and dung beetles in some land

uses such as secondary forest (SF), riparian forest (RF), tacotal (TC) (tacotal = forest in secondary regeneration) , and

grasslands with low (GLD) and high density of trees (GHD) in the agricultural landscapes of Cañas, Costa Rica and Rivas,

Nicaragua. The results indicated that in Cañas there were a total of 32,540 individuals of 408 species, and in Rivas there

were 22,810 individuals of 342 species included in different taxa (table 3) (Harvey et al. 2004). Table 3 shows their

distribution for each taxa. In addition, the research showed that the abundance was higher in GHD (138), and GLD (111) in

comparison with SF (77), and RF (63). However, the richness was very similar in all the land uses, i.e. GHD (25), GLD

(22), SF (27) and RF (25).

Moreover, isolated trees in pastures have considerable potential for biodiversity conservation (Harvey 2001; Esquivel and

Calle 2001). This potential is given by: 1) providing important habitats and resources within the agricultural landscape for

a variety of animals, including resident and migrating bird species, bats and other animals; 2) representing a large number

of different trees species; 3) providing landscape connectivity; 4) promoting the floristic diversity within pastures (natural

regeneration) and 5) retaining rich communities of epiphytes on their branches and trunks.

Table 3.- Number of species and individuals for different taxa sampled in 10,000 ha of fragmented landscapes of Rivas, Nicaragua and Cañas, Costa Rica.

Rivas, Nicaragua Cañas, Costa Rica Taxon No. Species No. Individuals No. Species No. Individuals

Vegetation 146 2,362 134 911 Bats 24 2,299 42 2,557 Rodents 6 71 10 141 Birds 83 1,840 128 1,374 Butterflies 50 559 60 544 Dung Beetles 33 15,679 34 27,013

Total 342 22,810 408 32,540

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2.4.2.- Carbon Sequestration

Other environmental service generated by SPS is Carbon sequestration. Carbon is sequestered from the atmosphere by

growing trees and by growing pastures with deep and extensive root systems. In the first case, carbon remains in the aerial

parts of the trees and the total amount of C sequestered per day depends of the number of trees per hectare, their rate of

growth, the species, and the weather conditions existing in the area. In the case of pastures, the carbon sequestered is stored

in the roots and in the soil. The net amount sequestered by pastures depends on the grass species, on the soil type and

humidity, on the management of pastures and livestock, on the availability of microorganisms in the soil, and on the losses

by leaching, fire and other causes (Botero 2000; Pomareda 2004).

Agroforestry systems in the Tropics have a great potential in contributing to mitigate global warming. Combination of C3

and C4 species is an efficient sink of C in SPS. For example, in Costa Rica, a research showed that the levels of C in SPS

(isolated trees-livestock-grass) was higher in comparison with natural forests (41.2 vs 35.2; 20.9 vs 15.7 and 42.8 vs 24.8

ton C/ha in Low Montano Forest, Very Humid Forest, and Humid Tropical Forest ecosystems, respectively) (Montenegro

and Abarca 2001).

2.4.3.- Water

Another environmental service provided by SPS with timber trees could be the protection of watershed recharge zones.

Water infiltration is directly proportional to the quantity of biomass in the upper soil. In a research developed in South

Dakota, USA, the highest infiltration rate (p <0.05) was in lightly grazed areas (2.95 inches/hr), compared with moderately

grazed (1.69 inches/hr), and heavily grazed (1.05 inches/hr) (Rauzi and Hanson 1966). Other study developed in Pakistan

showed that the terminal infiltration rate was higher (p < 0.05) in the treatment with the highest level of phytomass, 5.22,

4.62, 4.35, 3.66 cm/hr for 2,667, 1,432, 1,020, 627 kg/ha, respectively (Bary et al. 1993). Another study mentioned that the

average water infiltration rate (inches/hr) and penetration resistance (pounds/inch2) were 2.27, 58.4; 3.64, 37.9; 4.41, 53.6;

and 10.58, 24.3 for the grassy areas of heavily grazed, moderately grazed, lightly grazed, and nograzed pastures,

respectively (Rhoades et al. 1964). A research developed in the Southwestern of the Iberian Peninsula, compared two

components of a rangeland ecosystem of Mediterranean evergreen oak trees (tree-grass and only grass). Soil water storage

was higher (p < .0001) under tree cover than open grasslands (622 vs 206 mm, respectively), and runoff was greater in

open grassland than under tree cover (172 vs 84 mm, respectively) (Joffre and Rambal 1993). In Yucatan, México a

research showed that a SPS (L. leucocephala and P. maximun) with a density of 5,000 plants/ha, had a gravimetric soil

water content 27.8 % below of the permanent wilting point. This indicates that the SPS can maintain trough the year a

sufficient quality of water in the soil to keep plants growing (Delgado et al. 2004). In conclusion, SPS with an adequate

management, could increment infiltration rate, and reduce run off and soil compactation.

2.5.- Timber market

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The value of global trade in forest products has increased from USD 6 billion in 1962 to USD 155 billion in 1997 (Wardle

and Michie 2001). This represent a fivefold increase in real terms. This total is made up of five major forest product

aggregates: roundwood, sawnwood, panels, pulp and paper. Asian-Pacific and Latin American countries expanded their

exports at twice (from 8% in 1962 to 16% in 1997) the average rate of growth of that of the world (Wardle and Michie

2001). In addition, exports of processed wood products from International Tropical Timber Organization (ITTO) producers

in the Latin America- Caribbean region, reached USD 552 million in 1998, in contrast to the modest start of just USD 81

million in 1989. Much of the growth took place in the early 1990s, when furniture exports multiplied almost sixfold in just

four years (1989- 1993) (OIMT 2002).

A study developed in Costa Rica, calculated the real timber stumpage price from 1983 to 1993 in fine, hard, semi-hard, and

soft wood. Real prices for fine timber (C. odorata) had increased 21% annually between 1988 and 1993, and 14.2%

annually between 1983 and 1993. The research concluded that the prices paid for standing timber over the past 5 and 10

years had appreciated at very high rates relative to the overall rate of inflation in Costa Rica, and stumpage prices can be

expected to continue rising in real terms (Howard 1995). The size of the affluent urban domestic market tends to be

underestimated, despite the fact that it often plays a much more important role in the total trade of further processed than in

primary processed products (OIMT 2002). Information above indicated that, timber market is open with a high demand of

stumpage wood and processed wood products, and the tendency for the value of the timber wood.

2.6.- Economics of timber trees in Silvopastoral Systems

2.6.1.- Capital theory

Classical economic theory defines capital as a durable good produced by people and used in production. Under this

definition, three types of capital assets are distinguished (Klemperer 1996): 1) durable goods such as machinery,

equipment, tools, works of art, buildings; 2) financial assets such as savings account, bonds, stocks, and certificates of

deposit; and 3) land and natural resources such as coal, oil, and timber. The forest is like a certificate of deposit or a stock,

investors can buy it in the hope that over time, it will return more money than they paid for it. However, forests are much

more than that and can yield other benefits, such as non timber products and environmental services. But the financial

view is a useful framework into which the investor can later weave nonmonetary aspects (Klemperer 1996).

All capital assets can be bought and sold. Also, over the time, the buyer expects to receive more than what was paid for the

asset. Broadly speaking if the investors buy an asset, they give up the chance to spend that money now on goods and

services. So their reward for postponing expenditure is the extra value receive from an asset above its purchase cost. The

simplest example is a savings account: if the investor puts 100 USD in the bank for a year and earn 7 percent interest, the

investor can withdraw 107 USD at the end of the year. People do not normally invest capital without expecting some extra

return (Klemperer 1996). Timber and forestland are considered capital. Buyers of a forest or those who invest in forest

management expect to eventually get more than they gave up for it (in money or nonmoney terms). The amount will be at

least as much as they could reap over the same period on an equal amount invested in their best alternative at a similar risk.

When investing , they give up an opportunity for earning elsewhere on the same capital: this is the opportunity cost, or the

77

cost of an opportunity forgone. In fact, to willingly invest more, some people need a minimum acceptable rate of return

(Klemperer 1996).

2.6.2.- Interest rate theory

An important feature of forestry is the long production period. It takes often decennia after establishment before yields and

revenues are obtained. Also, between the implementation of others silvicultural activities and their revenues a long period

can usually be observed. This is in contrast to other business sectors, in which yields can be already achieved after some

weeks or months. The long periods between investing and obtaining revenues is seen as a disadvantage. People prefer to

have goods and disposal now, rather than after some time. Costs and revenues which occur on different points of time

should not simply be compared. To compare costs and revenues which occur on different points of time, we should use a

discount rate (Filius 1992).

The rate of interest is the result of the interaction of supply of and demand for capital. The rate of interest in discounting

calculations is named the discount rate. The supply of capital depends on the willingness for saving. This willingness in

turn is determined by the marginal time preference. The function of the rate of interest in the classical theory is to

equilibrate supply of and demand for capital. People think that their income in the future will be higher. The marginal

utility of consumption decreases with increases of income as is usually assumed. A transfer of a unit of income from the

current period to a future period (in which income is higher) means that the utility of this transferred unit of income is

lower than if consumed only. On the other hand, if a unit of future income could be spent now, it would give a higher

utility, than if spent later. Beside the decreasing marginal utility of consumption, myopia an the risk of death have been

mentioned as reasons for a positive marginal time preference (Filius 1992).

2.6.3.- Multiple use forest management theory

Forest have always been used not only for the production of timber and fuel-wood but also for hunting, grazing, gathering,

and fruit. Also, the forest does not want to produce more than one product, say timber, in fact he produces at the same time

other products, such as wildlife, recreation opportunities, and environmental services (carbon sequestration, biodiversity,

watershed protection, among others). Multiple use forestry has received considerable attention in USA since World War II

because recreation opportunities, wildlife and water have become scarce. Scarcity is a result of demand and supply.

Demand for these products has increased considerably due to income and population growth. Products, which have a

market price, will then realize an increase in price leading to an increase in their supply. Compared to single use, multiple

use does not only involve intensification of use, but usually also that of management costs. The higher price (per unit of

output) allows the manager to have a higher cost level. However, for recreation opportunities, wildlife and water supply, no

market price exists. Therefore, supply will not react on an increase of demand, since an increase of supply will involve an

increase of costs. Yet, in most countries, the government felt that supply had to be increased. Multiple use forestry is

therefore especially a problem for the government. The question is which mix of products shall be produced, how the

manager can produce that mix of products and which interventions could effectively and efficiently be used to stimulate

supply of private forestry (Filius 1992).

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There are three conceptions of multiple use (Filius 1992). 1) Single use take place in a subarea, but in the whole area

several goods/services are produced. The management in a subarea is directed to single use: the primary or dominant use.

Secondary use is possible and allowed if this is not at the cost of the primary use. 2) Use and management for more than

one function takes place in every subarea, although not all goods/services should necessarily be produced on each subarea.

3) Possibility of multiple use in when different uses are practiced successively along the time.

Several combinations can be produced by implementing the several forest management activities in different ways (Filius

1992). 1) Competitive relationship; it means that more output of one good/service only can be reached if the output of the

other good/service is diminished. The products compete for the allocation of production factors. 2) Complementary

relationship; it means that the output of one good/service increases as a consequence of the increase of output of another

good/service. 3) Independent relationship; two goods/services are independent or indifferent if the output of one

good/service does not affect the output of another.

Agroforestry, is a type of multiple use which has received much attention in tropical countries. Also, in agroforestry we

have complementary, supplementary and competitive relationships in production (Filius 1992). An example of

complementary production in sole cropping is the positive effect of one crop on the crop rotation of another. In modern

shifting cultivation, trees fertilize the soil for agricultural crops. An example of supplementary production occurs in sole or

intercropping if the crops draw on resources (labour at different times of the year). An example of competitive production

will be that, in which trees in grazing forest are often damaged by livestock. These relationships are as a rule complex,

because these relationships are not two dimensional, as depicted above, but multidimensional. Insufficient information on

these relationships is a major obstacle in rational decision-making in forest resources management (Filius 1992).

2.6.4.- Investment in silvopastoral systems with timber trees

Implementation of SPS with timber trees could be a good investment option for livestock farmers. However it depends on

several factors, for example: the SPS designed; the amount of the initial investment; the timber tree species selected; the

existence of incentives or a payment for environmental services, among others. In the following paragraphs are presented

several experiences that try to explain these assertions.

One of the forms for incorporating timber trees in pastures is through natural regeneration. This technique is based on the

selective cutting of vegetation that leaves tree seedlings of valuable timber species. The conventional grasslands

management is based on the systematic cleaning of weeds (one or two cuttings per year). Under natural regeneration the

most vigorous species of trees are trimmed but not cut. This means that, in each cleaning operation, a lower number of

trees are cut off and the weeding interval will be longer. Secondly, it also represents a cheaper implantation of SPS,

because this system does not have the expenditure related with buying, carrying and planting the trees (Viana et al. 2001).

Some estimations showed that is possible to have incomes of 3,000 USD/ha/year or higher depending on timber prices

(equivalent to one timber volume of 52 m3/ha) arising from 54 trees developed under SPS (Camargo et al. 2001).

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If the investors in SPS with timber trees want more security in their investments, sometimes it is necessary to apply more

capital on tree management, specially when the trees are young. For example, establishment costs of a silvopastoral system

(trees in grasslands) in degraded pasture lands was lower when the trees were not protected with wire fences (515.9

USD/ha) than when they were protected (738.61 USD/ha). However, in the second case (with wire fence), grazing the

whole area of pasture could be advanced six months (with an extra income of 155.93 USD/ha for beef sale) relative to the

first case (without wire fence) (Carvalho et al. 2001). A study in the Southeastern of United States modelled five scenarios

(Pine plantation, silvopasture, livestock, soybean, rice), with the objective to determine Land Expected Value (LEV)

profitability of the SPS against other land uses. Silvopasture had better profitability (3,096.50 USD), than livestock

(2,784.75 USD), soybean (2,860.81 USD), and rice (2,593.57 USD) (Grado and Husak 2004).

The incorporation of timber trees in livestock farms has shown to be profitable. In 1990’s, the profitability of two SPS with

timber trees (225 trees/ha and 416 trees/ha) and two monocultures (livestock in grasslands without trees) in the Argentine

Pampas were compared. The highest values for Internal Rate of Return (IRR), Net Present Value (NPV) and Land

Equivalent Ratio (LER) were obtained with SPS with timber trees (Marlats et al. 1995). In a study developed in the

Southern of Mississippi, Land Expected Value (LEV) were higher (net change 24 - 30%) when silvopasture with timber

trees treatments were compared with commercial forest plantations applied on similar sites (Grado et al. 2001). In a

financial comparison between traditional dairy systems without timber trees and SPS with timber trees in Cayo, Belize,

income from timber trees and potential income from environmental services provided by SPS resulted in higher NPV

(55,414 USD vs 30,315 USD) and C/B ratio (1.68 vs 1.38) than those without trees (Alonzo and Ibrahim 2001).

The Payment for Environmental Services (CO2 fixing, biodiversity and water) could be a good strategy to improve the

implementation of SPS with livestock farmers. For example, an ex-ante benefit-cost analysis determined the effect of the

Payment for Environmental Services (PES) in the implementation of SPS under seven representative scenarios of Costa

Rica, Nicaragua and Colombia. In all cases, PES helps in the implementation of SPS, while the SPS improve the

productive and reproductive parameters in the herd (Gobbi and Ibrahim 2004). A study developed in Lake Okeechobee,

Florida, USA, using a stated preference approach determined that the households would to pay from 30.24 to 71.17 USD

per year for 5 years to livestock farmers that implement environmental friendly SPS in the watershed recharging zone

(Shrestha and Alavalapati 2004; Alavalapati et al. 2004).

3.- Methodology 3.1.- Study area This study was conducted in the Esparza area, located in the Central-Pacific Region of Costa Rica (figure 1). The region

has an extension of 2,835.63 km2 and includes the “cantones” (equivalent to county) of Puntarenas, Esparza, Montes de

Oro, Aguirre, Parrita, Garabito, San Mateo and Orotina. Esparza is located between the coordinates 10°10' North and

84°42' West with an altitude of 140 m.a.s.l. The average annual temperature is 27.2°C, with a maximum of 36°C and a

minimum 23°C. It has a bimodal rain regime, with high incidence of rains in June, September and October. The average

annual precipitation is 2,040 mm/year. The relative humidity is between 60 and 65% in the dry season, and 80-85% during

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the humid season (Calvo 1994). Soils in the area are Planisols, Alfisols, Nitrisols and Andosols (Betancourt 1994). The life

zone is Forest Tropical Sub-Humid (Holdridge 1978). The Esparza region has a population of 23,963 (13,561 in urban

areas and 10,402 in rural areas), 59% are in productive age. Population annual growth rate is 1.9 %. The Social

Development Index (SDI) is 62.81 and the literacy rate is 95%.

Figure 1.- Study area location, Esparza, Puntarenas, Costa Rica, CA.

3.2.- Models of financial analysis An ex-ante benefit cost analysis was developed to explore the financial feasibility of incorporating Silvopastoral Systems

with timber trees under different arrangements in livestock farms in the Sub-humid Tropics of Costa Rica. The analysis

was conducted following the methodology proposed by Brown (1981); Gittinger (1982); Gobbi (2000), and Navarro

(2003a). The models considered the situation “without project” (livestock system) versus “with project” (livestock systems

with timber trees) in order to calculate the incremental net benefits due to the investment.

3.2.1.- Model definitions

With the objective to define the models, 60 interviews and 45 field trips were conducted with farmers in the zone.

Interviews were carried out with the following goals:

i. To understand farmer’s perception about SPS

ii. To identify which SPS with timber trees they prefer

iii. To identify the extend of timber trees they want to implement

iv. To define which conditions should exist to implement SPS

1 This index is a summary of several social indicators such as educative infrastructure, children death rate, electricity consumption per month and general death rate. This index fluctuates between 0 and 100 (100 is the best indicator) (http://www.inec.go.cr ).

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The interviews were also conducted to identify the advantages and disadvantages of those systems; to identify the most

useful timber tree species existing on the farms; and to determine the capital, and land value in each type of farm. After

that, several SPS with timber trees were designed according to farmer’s opinion, and these designs were modeled into one

hectare. The identified SPS with timber trees according farmer’s opinion are shown in table 4.

Table 4.- Models designed with timber trees in SPS according to farmer’s opinion. Esparza, Costa Rica. 2004.

Number of model SPS with timber trees

Model 1 Timber trees in fences Model 2 Timber trees under natural regeneration in natural grassland with

fattening livestock production system Model 3 Secondary regeneration forest (tacotal) enriched with timber trees in

degraded grassland Model 4 Planting timber trees in a perpetual system in improved grassland with

fattening livestock production system 3.3.-Sources of information

Several sources were consulted for developing the models. They are mentioned below.

3.3.1.- Livestock component

i. Maintenance costs for grassland and livestock were obtained from the socioeconomic diagnosis implemented by

the Integrated Silvopastoral Approaches to Ecosystem Management Project (financed by GEF and administrated

by CATIE) from April to September 2004.

ii. Sales prices for male calve and young bulls were obtained from the regional livestock auction AGAINPA (Pacific

Zone Independent Livestock Association).

3.3.2.- Timber component

i. C. odorata was the timber species selected. This species was chosen because it is a native species, and is one of the

most preferred timber species for the farmers. It grows by natural regeneration in grasslands, is the most demanded

by the woodworkers in the zone, and has a good price in the local and regional market. To estimate the growth of

C. odorata several equations were developed using the Software Silvia ? developed by CATIE.

ii. Price for standing wood (68.143 USD/m3) was obtained from local woodworkers, Esparza regional sawmill and

the Costa Rican Forest Chamber (appendix 6a).

iii. Establishment costs and management budgets for C. odorata were based on information from Reiche (1991),

Reiche and Gómez (1993), Gómez and Reiche (1996), Black Solis (2003), livestock farmers and key informants

(Agricultural and Livestock Bureau of Costa Rica, and CATIE’s forest experts).

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3.4.- Model development

Four SPS with timber trees were modeled into one hectare: 1) timber trees in fences, 2) timber trees under natural

regeneration in natural grassland with fattening livestock production system, 3) secondary regeneration forest (tacotal)

enriched with timber trees in degraded grassland, 3a) tacotal without timber trees, and 4) planting timber trees in a

perpetual system in improved grassland with fattening livestock production system.

3.4.1.- Livestock and grasslands maintenance costs Maintenance costs for the livestock and grasslands components in the models were obtained from a socioeconomic

diagnosis developed by the GEF-Project and applied to 30 livestock farmers in the zone. Table 5 and appendix 1, 2, 3 and 4

present the information. All information is presented in USD with a exchange rate of 1 USD = 430 colones (colon is the

Costa Rican currency).

Table 5.- Annual maintenance costs for livestock and grassland components, Esparza, Costa Rica. 2004.

Component Annual maintenance cost (USD)

Livestock (from calf to young bull) (USD/calf/year) 38.53 Degraded Grassland (USD/ha/year) 23.98 Natural grassland (USD/ha/year) 85.9 Improved grassland (USD/ha/year) 17.0 1 USD = 430 colones

Grazing capacity estimated for degraded, natural, and improved grassland were 0.2, 0.5, and 1.5 AU/ha/year, respectively.

These parameters were estimated from the interviews with livestock farmers and two salesmen of forage seeds in the zone.

3.4.2.- Livestock prices for calve and young bulls

Livestock auction AGAINPA proportioned the information (table 6). This information included livestock prices and

weights in each class of bovine from January to September 2004 (appendix 5 and 5a).

Table 6.- Sale prices and sale weights for the livestock component in the models. Esparza, Costa Rica. 2004.

Livestock component Kilogram sale price (USD) Sale weight (kg)

Male calf 0.986 157 Young bull 0.901 287

1 USD = 430 colones

3.4.3.- Canopy shadow interactions with components of the SPS

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Two interactions of the canopy shadow with the SPS were modeled. The first interaction modeled was a reduction in the

biomass production of the grasslands of minus 30% in natural grasslands and minus 15% in improved grasslands. They

were estimates based on several researchs (Acciaresi et al. 1994; Bolívar et al. 1999; Villafuerte et al. 1999; Andrade et al.

2000; Mochiutti and Lima 2000; Andrade and Ibrahim 2001; and Alvim et al. 2004).The methodology to estimate this

effect is presented below.

1.- To calculate total area covered by the canopy

First, Breast high diameter (bhd) of trees for each year was determined with the software Silvia ? . Following, canopy area

was determined with the equation Y= 2.11(bhd), developed by Esquivel et al. (2004). Then, the result was multiplied by

the number of trees/ha modeled for each year.

2.- To adjust the herd to the new grazing capacity.

The following steps were developed. First, to determine how many AU were affected by the canopy area. This calculation

was made following the next assumptions: one hectare of natural pasture (10,000 m2) can maintain 0.5 AU, how many AU

can maintain the total area covered with the trees (i.e. 3000 m2). For example: (3,000 m2 x 0.5 AU)/10,000 m2 = 0.15 AU

are affected by canopy shadow. Second, to model the reduction in biomass production under the canopy area (i.e. 0.15 AU

x -30% = -0.045 AU), and to subtract this proportion of AU at the normal capacity of grazing (i.e. 0.5 AU -0.045 AU =

0.455 AU). In this case, 0.455 is the AU capacity for one hectare of natural grassland adjusted with the canopy shadow

effect.

The second interaction modeled was an increment of 10% in beef production due to the comfort proportioned by the

canopy shadow (Restrepo Sáenz 2002; Abreu de Souza et al. 2004). This effect begins in the sixth year after planting the

trees, because it was estimated that at this age the trees had enough canopy to provide comfort to the livestock component.

3.4.4.- Estimation of timber production With information from 91 experimental plots of C. odorata in Colombia, Costa Rica, Panama, and Nicaragua (Ford 1979;

Castaing 1982; CONIF 1985; CATIE 1986; Vega 1987; Guevara 1988; and Flores 2002), equations of diameter, basal

area, high, and total wood production with cortex were developed by Alvaro Vallejo (CATIE’s Forest Technician) (Table

7). Afterwards, those equations where incorporated into the simulation module of the Software Silvia ? developed by

CATIE for estimating the growing models of C. odorata . The followings assumptions were taken into account for building

the growing models in the simulation module (table 8).

Table 7.- Equations for modelling growth of Cedrela odorata used with the Software Silvia ? ,

Esparza, Costa Rica. 2004.

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Indicator Equation Diameter Exp(2.80201 - 5.261363/T + 0.058453*S - 0.000468*N)

Height EXP(Ln(S) - 5.3866 * (1/T - 0.1)) Basal Area Exp(0.957189 - 9.211785/T + 0.111422*S + 0.000886*N)

Total wood production with cortex

0.766711* H^1.027328*G^0.994234

Source: Software Silva? CATIE 2004. Table 8.- Initial and final densities, and years to final turn used in the model to estimate growth of

Cedrela odorata , with the Software Silvia ? , CATIE, Turrialba, Costa Rica. 2004.

Model Initial Density (trees/ha) Final density (trees/ha) Final turn (years) 1 132 66 25 2 200 50 25 3 400 100 27 4 20 5 25

Each financial model was designed including three different site qualities for timber growth (bad, regular and good). It is

important to indicate that bad site quality was taken as the base line scenario for all the financial models.

3.4.5.- Estimation of PES

For each of the financial models developed, the methodology to apply PES utilized in the present study was developed by

the Integrated Silvopastoral Approaches to Ecosystem Management Project (GEF-Project) (Word Bank 2002). The

underlying principle of the proposed payment system is that the farmer provides environmental services by changing land

use on his/her livestock farm from mono-culture of native pastures to more complex vegetation systems. Thus, changes in

land use patterns are an indicator of the volume of environmental services provided. There are 28 forms of land uses in the

selected sites, ranging from the degraded natural pastures to secondary forest. All land use forms are given points

according to their capacity to sequester carbon and to sustain biodiversity. The highest index is assigned to the primary

forest (one point to biodiversity and one point to carbon sequestration) and no points are given to degraded pastures (zero

points for biodiversity and zero points for carbon sequestration), more information in appendix 6 (Word Bank 2002).

The payment systems compensates for carbon sequestration and increments in the biodiversity, and is based on the land use

change index. The index was based on the following information. In the case of carbon, a secondary forest can fix an

average of 10 tons of carbon per year in wood and the soil. For example; secondary forest has a value of 1 point in the

index, therefore 1 point corresponds to 10 ton of carbon. Improved pastures fixes one half the amount of carbon that

secondary forest does. In the case of biodiversity, it is know that biodiversity is affected by multiple factors including

number of plant species, spatial arrangement, stratification, plot size, fruit production, among others. But is closely related

to the diversity and complexity of the plant species in a given form of land use. Values for biodiversity are assigned

according to natural biodiversity (plants, birds, small mammals and insects) that a particular land use can sustain. Higher

values (one point) are given to land use forms that have the greater potential to maintain the original biodiversity of the

region (Word Bank 2002).

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There are two payment schemes. In the first scheme, the farmer will receive an annual PES, computed according to the

index, along the payment period (4 years). The amount to pay for each point in the index will be USD 75. In the second

scheme, the farmer will receive an annual PES, computed according to the index, for a two-year period. The amount to pay

for each point in the index will be 110 USD. Table 9 shows an example of the computation of the PES following the

methodology developed by the GEF-Project (Word Bank 2002).

Table 9.- Computation of the PES following the methodology developed by the GEF-Project, Esparza, Costa Rica. 2004.

Scheme Land

use (year 0)

(A) Points

Land use (year 1)

(B) Points

( C ) difference

(B-A)

(D) Point value (USD)

(E) PES

(year/ha) (C*D)

(F) Years

PES (total/ha)

(E*F)

One Improved Pasture without trees

0.5 Improved pasture with high density of trees

1.3 0.8 75 60 4 240

Two

Improved Pasture without trees

0.5 Improved pasture with high density of trees

1.3 0.8 110 88 2 176

Source: World Bank 2002.

3.4.6.- Cash Flows

Annualized cash flows were built for each model, their characteristics are described below:

i. The cash flow period was 25 years for Model 1 and 2, 27 years for Model 3, and to perpetuity in Model 4.

Those periods were defined based on the final turn of the timber component.

ii. The discounted cash flow follows the assertion that all investments are accounted at the end of the year. Thus,

the investment in SPS with timber trees are registered in the year 1.

iii. The cash flow is expressed in USD, with the following money exchange rate 1 USD = 430 colones.

iv. Prices of income and costs were expressed in constant terms.

v. The agriculture and livestock borrowing rate in Costa Rica on October 23rd was 21.25 %

vi. The estimated inflation rate for 2004 was 13.78 % (Costa Rica, Banco Nacional, 2004).

vii. The real discount rate was 6.56 %. It was estimated with formula proposed by Klemperer (1996).

viii. The value of the land in the zone was estimated at 1,918 USD/ha.

3.4.7.- Sensitivity analysis

Whether or not the structure of a Cost Benefit Analysis is explicit in terms of contingencies and probabilities, always faces

some uncertainly about the magnitude of the impacts predicted and the values assigned to them. The purpose of a

sensitivity analysis (SA) is to acknowledge uncertainty. It follows the ceteris paribus assumption. It should convey how

sensitive the predicted net benefits are to changes in the value of a parameter. If the sign of net benefits does not change

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when considering the range of reasonable assumptions, then the investment is robust. However, SA has two major

limitations. First, they may not take into account all available information about assumed values of the parameters. Second,

this technique does not directly provide information about the variance, or spread, of the statistical distribution of realized

net benefits (Boardman et al. 2001). Discount rate and wood price were the variables utilized in the sensitivity analysis for

the models, with the following ranges: from 1% to 22% for the discount rate, and from 0 USD to 136.26 USD/m3 for the

wood price.

3.4.8.- Monte Carlo risk analysis

Monte Carlo Risk Analysis (MCA) provides a way of overcoming uncertainty. MCA has played an important role for

many years in the investigation of statistical estimators whose properties cannot be adequately determined through

mathematical techniques alone. The basics steps for doing MCA analysis are as follows (Boardman et al. 2001).

i. To identify risk variables in the models.

ii. To specify probability distributions in the risk variables.

iii. To identify the outputs.

iv. To select the number of interactions (5,000). The average of the trials provides an estimate of the expected value of

net benefits.

v. The resulting histogram of these counts provides a picture of the distribution. The more trials that go into the

histogram, the more likely it is that the resulting picture gives a good representation of the distribution of net

benefits. The histogram provides a visual display of the entire distribution of net benefits so that its spread and

symmetry can be easily discerned. The trials themselves can be used to calculate directly the sample variance,

standard error, and other summary statistics describing net benefits.

The risk analysis was made with the software @Risk developed by Palisade Corporation. The risk variables identified were

sale price for wood and beef. Wood price was modeled with a triangular distribution with a minimum value of 65.5 USD, a

more likely value of 68.14 USD, and a maximum value of 70.5 USD/m3. Beef sale prices were modeled with a Lognormal

distribution (0.986; 1). The quantity of iterations were 5,000 for each model, and Monte Carlo simulation was the

sampling type used.

3.4.9.- Financial indicators

For each model several investment indicators were estimated: Net Present Value (NPV), Land Expected Value (LEV),

Internal Rate of Return (IRR), and Benefit/Cost ratio (B/C).

3.4.9.1.- Net Present Value

NPV of a project is the difference between the present value of the benefits and the present value of the costs (Boardman et

al. 2001). In other words, NPV is the present worth of the incremental net benefit or incremental cash flow stream. The

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cash flow (costs and incomes) that occurs through time are recalculated and expressed in today’s value of money. The

decision rule is accept all projects with a NPV ? 0 (Filius 1992). The NPV indicator allows comparisons to be made

between different investment alternatives over dissimilar time periods. NPV is examined at various discount rates. The

discount rate can be viewed as the opportunity cost of using money. This means that the discount rate represents the next

best use of money invested in the agroforestry enterprise. This allows assessment of the effects of the chosen discount rate

on NPV (Dangerfield Junior and Harwell 1990). NPV marginal concepts is valid when the investments do not consider the

price of the land. It also has a few weaknesses. NPV does not consider the scale of the project, a long term project will be

more profitable than a short term one; and it does not consider the opportunity cost of the land (Filius 1992; Navarro

2003b). NPV is represented by:

Where: I = Inputs O = Outputs i = Discount rate t = Time

3.4.9.2.- Land Expected Value

LEV represents a specialized form of net present value analysis used in investment ranking. It estimates the value of the

land and is often used to evaluate mutually exclusives land use alternatives. The LEV is the amount an investor could pay

for bare land and still earn the minimum acceptable rate of return. This formulation is compatible with both forestry and

agricultural investments (Grado et al. 2001). LEV is calculated for forestry investments using the present value of a

perpetual periodic series formula:

Where: I = Inputs O = Outputs i = Discount rate t = Time -1 = Perpetual periodic series LEV assumes that annual and/or periodic costs and revenues projected for a certain time period are repeated in perpetuity.

All costs and revenues associated with the first rotation of timber were considered with the exception of the land

opportunity costs. Land value does not enter into the calculation because land value is being derived. Timber yields were

projected from established growth and yield equations. A selection of the best management regime (timber trees in fences,

trees in natural grasslands, natural regeneration, and trees in improved grasslands) was made through this comparison as

the land use with the highest LEV was considered the best use from a financial standpoint (Grado et al. 2001). In addition,

the formula of LEV is a good instrument to find not only the good shift, but also to demonstrate the importance of the

environmental services and the forest like an ecosystem (Marozzi 2002).

? y= 1

t

(1+ i ) t NPV =

( I t - O t )

Source: Gobbi 2003

? y= 1

t

(1+ i ) t NPV =

( I t - O t )

Source: Gittinger 1982

I (1 + i) t - O (1 + i) t ? ? y= 1 y= 1

t t

(1+ i ) t - 1

LEV =

Source: Navarro 2003

I (1 + i ) t - O (1 + i ) t ? ? y= 1 y= 1

t t

(1+ i ) t - 1

LEV =

Source: Faustmann 1849 cited by Navarro 2003b

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LEV can assist in selecting management regimes for a particular trees species on a specific site because it represents the

bare land value for the site when committed to a particular regime into perpetuity. A comparison of all LEV obtained from

various regimes allows to rank them on the basis of their potential returns. NPV and IRR are used only for accepting or

rejecting investment decisions. Equivalent annual income (EAI) and LEV are used for ranking investment decisions

(Grado and Husak 2004). The decision rule is to accept a project if its LEV is greater than 0 (Filius 1992). LEV has the

following strengths: all the projects have the same planning horizon; it is based on marginal concepts, it allows to better

define the value of the active; and the project is measured by a unit of area (i.e. hectare). Also has some weaknesses. It

assumes that the activity is sustainable; it depends on the price of the land; and takes into account only market benefits

(Navarro 2003b).

3.4.9.3.- Internal Rate of Return

Another way of using the incremental net benefit stream or incremental cash flow for measuring the worth of a project is to

find the discount rate that makes the net present worth of the incremental net benefit stream or incremental cash flow equal

zero. This discount rate is called the Internal Rate of Return. It is the maximum interest that a project could pay for the

resources used if the project is to cover its investment and operating costs and still break even (Gittinger 1982; Boardman

et al. 2001). The decision rule is to accept that project which gives an equal or higher IRR than a minimal desired rate of

interest (Filius 1992). However, it is not always recommended for use in agroforestry as it can give misleading results if

there are differences in benefit stream, and it cannot be used at all if there is no negative cash flow at the beginning (Scherr

et al. 1992).

3.4.9.4.- Benefit-Cost ratio

This ratio is obtained when the present worth of the benefit stream is divided by the present worth of the cost stream. The

absolute value of the B/C ratio will vary depending on the interest rate chosen. The higher the interest rate, the smaller the

resultant benefit-cost ratio (Gittinger 1982). The decision rule is accepted all projects with a B/C ratio ? 1 (Filius 1992).

One convenience of this ratio is that it can be used directly to note how much costs could rise without making the project

economically unattractive (Gittinger 1982). A weakness of this ratio is that it is not clear what to consider among the

benefits and what among the cots (Filius 1992). Its formula is presented below:

Where: Bt = benefits of the project in year t Ct = costs of the project in year t i = discount rate 3.4.10.- Results presentation

Result were presented in the following order:

? ?

t=1

Bt

(1 + i)t

? ?

t=1

Ct

(1 + i)t

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i) Characteristics of the tree arrangement proposed (timber trees in fences, isolated trees in natural grassland,

secondary regeneration, and isolated trees in improved grassland at perpetuity).

ii) SPS establishment costs (investment in the situation “with project”).

iii) SPS operation costs, comparison of the situation “with” vs “without project”.

iv) Wood production and incomes from timber component in three site qualities (bad, regular and good).

v) Financial indicators; NPV, IRR, B/C, and LEV.

vi) Site quality effect on financial indicators.

vii) Cash flow analysis (situation “with” vs “without project”) and the net incremental benefits

viii) PES effect in cash flow and financial indicators.

ix) Bad site quality was considered as base line scenario to develop the sensitivity and risk analysis. It was based on

the following assumption: if in bad site quality the investment passes the test, under regular and good conditions

the indicators would be better.

x) Sensitivity analysis.

xi) Risk analysis.

4.- Results 4.1.- Model 1, Timber trees in fe nces

4.1.1.- Model description

The first model corresponds to the incorporation of timber trees into existing living fences surrounding one hectare of

improved grassland. Model 1 has the following characteristics: trees were planted in 400 lineal meters at 3 x 3 m (132

initial density), with one thinning in year 10, and 66 trees at final turn. The most common specie in existing living fences in

the zone is Bursera simaruba. Timber trees of C. odorata were planted 20 cm separated from the wire fence, and between

the posts of B. simaruba (Figure 2). The trees are planted under this design with the following objectives: to avoid damage

of fence wire, to protect the trees against cow’s damage, and to reduce competition with living fence trees. The livestock-

90

grass component does not have relationship with the timber component. Therefore, only the timber component of trees in

fences was modeled.

Figure 2.- Model 1, design of timber trees in an existing living fence. Esparza, Costa Rica. 2004.

4.1.2.- Establishment costs

To establish 400 lineal meters of trees in an existing living fence costs 104.70 USD. The larger proportion of establishment

costs are materials (58.6%). Establishment costs are presented in table 10 (more details in appendix 7).

Table 10.- Establishment costs for 132 timber trees in 400 m of existing living fences (3 m between the trees). Esparza. Costa Rica. 2004.

Concept USD/ 400 mt

Labor 18.56 Material 61.40

Total 104.70 1 USD = 430 colones.

4.1.3.- Operating costs

Model 1 operating costs for the management of 132 trees are presented in table 11 (more information in appendix 7).

Higher incremental costs are incurred in the first three years, as more intensive silvicultural management was applied in

those years. The management included weeds cleaning, fertilization, technical assistance, and formation pruning. In

addition, from year four to year ten incremental costs were lower in comparison with the first three years. Management in

those years included weeds cleaning and formation pruning, and one thinning in year ten. Finally, from years eleven to

twenty-five, incremental costs were zero.

Table 11.- Model 1, operation costs of 132 timber trees in 400 m of existing living fences (3 m between the trees). Esparza, Costa Rica. 2004.

Year Situation Concept

1 2 3 4-5 6-9 10 11- 25 Labor 38.74 38.74 38.74 34.96 46.58 20.96 210 With

project Material 0 21.80 29.38 0 0 0 0 Total (A) 38.74 60.54 68.12 34.96 46.58 20.96 210 Labor 14.0 14.0 14.0 28.0 28.0 14.0 210 Without

project Material 0 0 0 0 0 0 0 Total (B) 14.0 14.0 14.0 28.0 28.0 14.0 210

Incremental Costs (A-B) 24.74 46.54 54.12 6.96 18.58 6.96 0

Above view

Side view

3 m 3 m

20 cm

20 cm

20 cm

91

4.1.4.- Wood production and income from the timber component

Wood production and incomes generated in the tree site qualities modeled for the timber component are presented in table

12 (more information in appendix 8). Timber production and revenues generated by wood sales were three times lower in

the bad site quality, and two times lower in regular site quality in comparison with the results obtained in the good site

quality. In conclusion, site quality selection is very important in timber productivity.

Table 12.- Total timber production at final turn (25 years) under three different quality sites. Sixty-six timber trees surrounding one hectare of improved grassland. Esparza, Costa Rica. 2004.

Site quality Bad Regular Good

Number of trees/final turn 66 66 66 M3/ ha/ final turn 34.68 50.14 99.55

USD/ ha/ final turn 2,362.74 3,416.03 6,782.34 1 USD = 430 colones. 1 m3 = 68.13 USD

4.1.5.- Financial analysis

4.1.5.1.- NPV, LEV, IRR, B/C results Model results are presented in table 13. In all scenarios modeled the investment were profitable. Good site quality

presented a NPV that was five times higher than that from bad site quality. IRR in good site quality was 5.2% and 1.8%

higher in comparison with bad and regular site quality, respectively. B/C ratio in good site quality was three times, and

two times higher than those from bad, and regular site quality, respectively. Finally, LEV in good site quality was 1.05 and

1.25 times higher than those from regular and bad site quality, respectively.

Table 13.- Site quality effect on investment profitability. Model 1, timber trees in 400 m of existing living fences. Esparza, Costa Rica. 2004.

Site quality NPV* (USD) IRR* (%) B/C LEV** (USD)

Bad 275.63 10.6 2.33 2,698.39 Regular 490.76 12.4 3.37 2,850.29

Good 1,178.45 15.8 6.69 3,359.32 *1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56 % Net cash flow comparison between the situation “with” vs “without project” presents a difference in the first three years

(figure 3). However, the income generated in year 25 (wood sale), made the investment profitable.

92

Figure 3.- Net cash flows, situation with vs without project. Model 1, timber trees in 400 m of

existing living fences. Esparza, Costa Rica. 2004.

4.1.5.2.- PES effect on investment profitability

PES increment the profitability of the investment 18% under payment scheme one, and 8% under payment scheme two

when considering the NPV indicator. It also increments the profitability of the investment 14% and 7% under the

mentioned payment schemes when considering the LEV indicator. Table 14 shows the PES computation for Model 1, and

table 15 presents PES effect on investment profitability. In addition, figure 4 shows cash flows with PES in schemes one

and two, and without PES.

Table 14.- PES estimation for Model 1, timber trees in 400 m of existing living fences. Esparza, Costa Rica. 2004.

Land Use Score/ km Points

Living fence (one specie) 0.6 pts Multi-stratum fence (Two or more species) 1.1 pts Difference 0.5 pts

Payment Time/ years of PES

USD/ point

Difference in land use (points)

Km of Fence

PES/year/ Ha (USD)

Scheme one (four years) 4 75 0.5 0.4 15.0 Scheme two (two years) 2 110 0.5 0.4 22.0

Table 15.- PES effect on investment profitability. Model 1, timber trees in 400 m of existing

living fences. Esparza, Costa Rica. 2004.

Site quality Payment for Environmental Services

NPV* (USD)

IRR* (%)

B/C LEV** (USD)

Without 275.63 10.6 2.33 2,698.39 PES (Scheme one) 326.95 12.0 3.10 2,914.33

Bad

PES (Scheme two) 315.65 11.7 2.89 2,888.39

0

500

1000

1500

2000

2500

3000

3500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25Years

Net

ben

efit

(U

SD

/ha)

With project Without project

93

Figure 4.- PES effect on discounted cash flow, comparison with vs without PES. Model 1, timber trees in 400 m of existing living fences. Esparza, Costa Rica. 2004.

Although the PES increases investment profitability, its contribution in the net cash flow is marginal (only 38% and 28%

of the establishment costs are covered by PES under schemes one and two, respectively). An increment in the value of the

point could increment the project feasibility.

4.1.5.3.- Sensitivity analysis

Effect of changes in discount rates and in wood prices on model’s profitability are presented in tables 16 and 17. NPV and

LEV were sensitive to changes in the discount rate, because an increment in the discount rate of 4.4% and 2.44%

respectively, made unprofitable the investment. In contrast, both indicators were robust to changes in wood prices. In the

case of NPV, IRR, and B/C, it was necessary a decrease of 60% in the price of wood to collapse the investment. LEV

indicator was insensitive to wood prices.

Table 16.- Sensitivity analysis, discount rate effect on financial indicators. Model 1, timber trees in

400 m of existing living fences. Esparza, Costa Rica. 2004.

Discount Rate (%) NPV* (USD) IRR* (%) B/C LEV** (USD) 1 1,606.09 10.6 7.79 19,498.68 2 1,209.81 10.6 6.25 9,557.44 3 903.73 10.6 5.02 6,254.15 4 666.91 10.6 4.04 4,609.27 5 483.39 10.6 3.25 3,626.85 6 340.99 10.6 2.63 2,975.13 7 230.38 10.6 2.12 2,512.52 8 144.40 10.6 1.72 2,167.06 9 77.56 10.6 1.39 1,900.46 10 25.60 10.6 1.13 1,688.10 11 - 14.76 10.6 0.92 1,515.54 12 - 46.06 10.6 0.75 1,372.69

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56 % Table 17.- Sensitivity analysis, effects of changing wood price on financial indicators. Model 1,

timber trees in 400 m of existing living fences. Esparza, Costa Rica. 2004.

Wood price change (%) NPV* (USD) IRR* (%) C/B LEV** (USD) - 100% - - - 2,426.32

-200-100

0100200300400500600

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Years

Net

ben

efit

(U

SD

/ ha)

Net flow without PES Net flow with PES (scheme one) Net flow with PES (scheme two)

94

- 60% - 13.93 6.2 0.93 2,521.75 - 50% 34.31 7.3 1.16 2,546.12 - 40 % 81.83 8.1 1.39 2,572.96 - 30% 130.06 8.9 1.63 2,602.30 - 20% 178.29 9.5 1.86 2,633.04 - 10% 226.52 10.1 2.09 2,665.11 0 % 275.63 10.6 2.33 2,698.39

+ 10% 322.98 11.1 2.56 2,731.16 + 20% 371.43 11.5 2.79 2,764.69

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare.

4.1.5.4.- Risk analysis

Figure 5 and 6 show risk analysis results. Figure 5 showed that the investment had low risk when risk for wood price was

modeled using the NPV indicator. LEV was insensitive to risk for wood price. However, risk in beef price made less

confident the option, since a probability of 52.3% of failure exists for the investment.

Figure 5.- Model 1, timber trees in 400 m of existing living fences. Risk analysis, distribution for Net Present Value (NPV) applying risk in wood price. Esparza, Costa Rica. 2004.

Figure 6.- Model 1, timber trees in 400 m of existing living fences. Risk analysis, distribution of Land Expected Value (LEV) applying risk in beef price. Esparza, Costa Rica, 2004.

Distribution for Net Present Value (NPV)

Mean = 274.6244

X <=287.0695%

X <=262.565%

0

0.01

0.02

0.03

0.04

0.05

0.06

255 265 275 285 295

USD Net Present Value

Distribution for Land Expected Value (LEV)

Mean = 3230.68

X <=-41308.095%

X <=64479.5795%

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

-300 -200 -100 0 100 200 300 400

Values in Thousands

Val

ues

in 1

0^ -

5Fr

eque

ncy

95

4.2.- Model 2, Timber trees under natural regeneration in native grassland

4.2.1.- Model description The second model designed was one hectare of H. rufa grassland with natural regeneration of C. odorata (figure7) . In the

first year 200 timber trees were selected. The number of timber trees at final turn (25 years) was 50 trees/ha. Two thinning

were developed in year 8 and 15. The livestock component corresponded to two calves that were fattened from 157 to 287

kg in one year.

Figure 7.- Model 2, design of the timber trees under natural regeneration in a native grassland.

Esparza, Costa Rica. 2004.

4.2.2.- Establishment costs

Model 2 establishment costs are presented in table 18 (more details in appendix 11). The investment to establish the timber

component was 34.89 USD. Materials represented 90% of the establishment costs.

Table 18.- Establishment costs of 200 timber trees under natural regeneration in one ha of native grassland. Esparza, Costa Rica. 2004.

Concept USD/ ha Labor 3.49

Material 31.4 Total 34.89

1 USD = 430 colones

4.2.3.- Operating costs Model 2 incremental costs are presented in table 19 (more information in appendix 11). Table below shows that the largest

incremental costs were done in the first three years. Because, in these years, management was more intensive (weeds

96

cleaning, fertilization, technical assistance, and formation pruning). In addition, from year 4 to year 15, incremental cost

were lower, as management was less intensive (weeds cleaning and formation pruning) and two thinnings were developed

in years 8 and 15. Finally, since year 16 there were no incremental costs, since management for both situations was the

same.

Table 19.- Operation costs of 200 timber trees under natural regeneration in a native grasslands with two fattening calves. Esparza, Costa Rica. 2004.

Year Situation Concept

1 2 3 4-5 6-7 8 9-10 15 16 -25 Labor 120.1 120.1 120.1 186.8 193.8 110.8 193.8 103.8 829 With

project* Material 80.0 112.7 124.1 160.0 160.0 80.0 160.0 80.0 800 Total (A) 200.1 232.8 244.2 346.8 353.8 190.8 353.8 183.8 1,629

Labor 82.9 82.9 82.9 165.9 165.9 82.9 165.9 82.9 829 Without project+ Material 80.0 80.0 80.0 160.0 160.0 80.0 160.0 80.0 800

Total (B) 162.9 162.9 162.9 325.9 325.9 162.9 325.9 162.9 1,629 Incremental Costs (A-B) 37.2 70.0 80.4 20.9 27.9 27.9 27.9 20.9 0

1 USD = 430 colones. * timber, livestock, and grassland components. + livestock and grassland component.

4.2.4.- Wood production and income from timber component

Wood production and incomes generated in the three site qualities modeled for the timber component are presented in table

20 (more information in appendix 12). Timber production increments significantly when site quality changes. For example,

timber revenues and incomes were 1.63 times and 67% higher in good and regular site quality than in bad site quality,

respectively.

Table 20.- Model 2, timber trees under natural regeneration in native grassland with two fattening

calves. Total timber production at final turn (25 years) under three different site quality. Esparza, Costa Rica. 2004.

Site quality

Bad Regular Good Number of trees /final turn 50 50 50

m3 / ha / final turn 24.55 41.19 64.64 USD / ha / final turn 1,672.59 2,806.27 4,403.92

1 USD = 430 colones. 1 m3 = 68.13 USD.

4.2.5.- Financial analysis

4.2.5.1.- NPV, LEV, IRR, B/C re sults

Site quality effect on investment profitability is presented in table 21. Results from the model showed that the investment

was profitable in regular and good site quality when considering NPV, IRR and B/C. However, the investment was

profitability only in good site quality when considering LEV. Appendix 13, 13a and 14 show the cash flows in more detail.

Table 21.-Site quality effect on investment profitability. Model 2, timber trees under natural

regeneration in native grassland with two fattening calves. Esparza, Costa Rica. 2004.

97

Site quality NPV* (USD)

IRR* %

B/C LEV** (USD)

Without Project 534.68 - - - Bad 352.47 12.89 2.55 1,325.24 Regular 583.96 14.61 3.56 1,857.28 Good 910.37 16.28 4.99 2,625.37

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56 % Net cash flows comparison between the situation “with” vs “without project” is presented in figure 8. The situation with

project had a negative net benefit in the first five years. After year five the cash flow shows a slight positive net benefit

above the opportunity cost (consequence of the increment in livestock production). The income generated in these years

and the income generated in year 25 by the timber component made the investment profitable.

Figure 8.- Net cash flows, situation with vs without project. Model 2, timber trees under natural regeneration in native grassland with two fattening calves. Esparza, Costa Rica. 2004.

4.2.5.2.- PES effect on investment profitability

Tables 22 presents computation for PES for Model 2, and table 23 present PES effect on investment profitability. PES

improves NPV 29% and 20%, and improves LEV 27% and 19% under payments schemes one and two, respectively.

However, the PES for the LEV was not enough to cover the opportunity cost (land value). Figure 9 shows cash flows with

PES in both payment schemes (one and two) and without PES. PES helps to compensate the investment in the first year

(80% and 1.18 times under scheme one and two, respectively). However, its contribution does not cover the totality of the

discounted investment (establishment and operation costs). For example, discounted scheme one cover 36.3% and

discounted scheme two 28.3% of the total discounted investment, respectively.

Table 22.- PES estimation for Model 2, timber trees under natural regeneration in native grassland with two fattening calves. Esparza, Costa Rica, 2004.

Land Use Score/ Ha (A) Natural grassland with low density of trees < 30 trees/hectare. 0.6 pts (B) Natural grassland with high density of trees> 30 trees/hectare. 1.0 pts Difference ( B – A) 0.4 pts

Payment Time/ years of PES

USD/point Difference in land use (points)

Hectares

PES/ year/ ha (USD)

-500

0

500

1000

1500

2000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Years

Net

ben

efit

(US

D/h

a)

With project Without project

98

Scheme one (four years) 4 75 0.4 1 30 Scheme two (two years) 2 110 0.4 1 44

Table 23.- PES effect on investment profitability. Model 2, timber trees under natural regeneration in native grassland with two fattening calves. Esparza, Costa Rica. 2004.

Site quality Payment for Environmental Services

NPV* (USD)

IRR* (%)

C/B LEV** (USD)

Without payment 352.47 12.89 2.55 1,325.24 PES (scheme one, four years) 455.11 17.92 4.64 1,689.57

Bad

PES (scheme two, two years) 425.24 16.35 3.74 1,580.04 *1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56 %.

Figure 9.- PES effect on discounted cash flow, comparison with vs without PES. Model 2, timber trees under natural regeneration in native grassland with two fattening calves. Esparza, Costa Rica. 2004.

4.2.5.3.- Sensitivity analysis

Effect on profitability of changes in the discount rates, and in wood prices for Model 2 are presented in tables 24 and 25.

For example, when NPV was considered the investment collapses with discount rate higher than 13%. In contrast, the

investment under NPV perspective was insensitive to changes in wood prices. When LEV was considered, the investment

was profitable only at discount rates below 4%. In addition, it is necessary an increment of 80% in wood price to make

profitable the investment. The investment under LEV point of view is more sensitive to changes in discount rates and wood

prices than under NPV perspective.

Table 24.- Model 2, timber trees under natural regeneration in native grassland with two fattening calves. Sensitivity analysis, discount rate effect on financial indicators. Esparza, Costa Rica. 2004.

Discount rate

% NPV* (USD)

IRR* (%)

B/C Discount rate %

LEV** (USD)

7 309.06 12.89 2.37 1 11,870.25 8 225.04 12.89 2.02 2 5,622.75 9 157.82 12.89 1.73 3 3,548.17 10 103.89 12.89 1.49 4 2,516.76 11 60.50 12.89 1.29 5 1,902.56 12 25.51 12.89 1.12 6 838.80 13 - 2.77 12.89 0.98 7 712.31 14 - 25.67 12.89 0.87 8 611.00 15 - 44.25 12.89 0.77 9 460.95

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.58 %

-100

0

100

200

300

400

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Years

Net

ben

efit

(U

SD

/ha)

Without PES With PES (scheme one) With PES (scheme two)

99

Table 25.- Model 2, timber trees under natural regeneration in native grassland with two fattening

calves. Sensitivity analysis, wood price effects on financial indicators. Esparza, Costa Rica. 2004.

Wood price

per M3 (USD) NPV* (USD)

IRR* ( % )

B/C Wood price per M3 (USD)

LEV** (USD )

- 100 % 10.80 7.04 1.04 68.134 1,325.24 - 40 % 215.25 11.42 1.94 81.66 (+ 20%) 1,478.27 - 30% 249.40 11.83 2.09 95.38 (+ 40%) 1,637.61 - 20% 283.55 12.21 2.24 109.01 (+ 60%) 1,796.96 - 10% 317.70 12.56 2.39 122.64 (+ 80 %) 1,954.21 68.134 352.47 12.89 2.55 136.26 (+100 %) 2,113.64

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare.

4.2.5.4.- Risk analysis

Figure 10 and 11 show risk analysis results. The investment was highly risky when risk in beef price was modeled.

Investment had 51.3% probability of success using NPV indicator. In addition, when risk in wood price was modeled, the

investment did not have possibility of success in all the combinations using LEV indicator.

Figure 10.- Model 2, timber trees under natural regeneration in native grassland with two fattening

calves. Risk analysis, distribution for Net Present Value (NPV) applying risk in beef price. Esparza, Costa Rica. 2004.

Distribution for Net Present Value (NPV)

Mean = 212.8874

X <=-11475.085%

X <=11574.5195%

0

1

2

3

4

5

6

-30 -20 -10 0 10 20 30

Values in Thousands

Val

ues

in 1

0^ -5

Val

ues

10-̂5

100

Figure 11.- Model 2, timber trees under natural regeneration in native grassland with two fattening

calves. Risk analysis, distribution of Land Expected Value (LEV) applying risk in wood price. Esparza, Costa Rica. 2004. 4.3.- Model 3 Changing from degraded land to tacotal enriched with timber trees.

4.3.1.- Model description

In this model, one hectare of degraded land was changed to secondary regrowth (tacotal) enriched with timber trees of C.

odorata. Trees were planted at an initial density of 400 trees/ha (5 m x 5 m) for a final density of 100 trees/ha (Figure 12).

Two thinning were applied in years 8 and 15 (50% and 25% of trees were cut, respectively). The final thinning was in year

27. When the hectare was a degraded grassland it had a livestock component composed of one fattening calf. Livestock

production was suspended when the land was devoted to secondary growth, starting at year one. Weeds cleaning in

degraded grassland was

suspended starting at year

one when trees were

incorporated.

Distribution for Land Expected Value (LEV)

Mean = 1332.821

X <=1313.785%

X <=1351.9995%

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

1.3 1.314 1.328 1.342 1.356 1.37

Values in Thousands

101

Table 26.- Establishment costs of 400 timber trees of C. odorata in one hectare of degraded

grassland. Esparza, Costa Rica, 2004.

Concept USD/ ha Labor 55.81

Material 206.98 Total 262.79

1 USD = 430 colones.

4.3.3.- Operating costs

Operating costs for Model 2 are presented in table 27 (more information appendix 15). The situation “with project” showed

the largest costs in years one, two, and three. It was consequence of tree management. From year four to fifteen, operation

costs were lower, as management was less intensive. Two thinnings were applied in year eight and fifteen. Finally, from

year sixteen to thirty operation costs were zero. Incremental costs were negative in the first three years, and years eight and

fifteen. In years four to seven, nine to ten, and sixteen to thirty incremental costs were positive. It was consequence of the

larger operation costs in the situation “without project”.

Table 27.- Operation costs of 400 timber trees of C. odorata in one hectare of degraded grassland. Esparza, Costa Rica. 2004.

Year Situation Concept 1 2 3 4-5 6-7 8 9-10 15 16- 30

Labor 74.4 74.4 74.4 20.9 27.9 74.4 27.9 74.4 0 With project* Material 0 65.58 88.37 0 0 0 0 0 0

Total (A) 74.4 140.0 162.7 20.9 27.9 74.4 27.9 74.4 0 Labor 20.7 20.7 20.7 41.5 41.5 20.7 41.5 20.7 310.5 Without

project+ Material 22.5 22.5 22.5 45.0 45.0 22.5 45.0 22.5 337.8 Total (B) 43.2 43.2 43.2 86.5 86.5 43.2 86.5 43.2 648.3

Incremental Costs (A-B) 31.2 96.8 119.5 65.6 58.6 31.2 58.6 31.2 648.3 1 USD = 430 colones. * timber and secondary regeneration components. + livestock and degraded grassland component.

4.3.4.- Wood production and income from timber component

Wood production and income generated from the timber component are presented in table 28 (more information in

appendix 16). Since it is a degraded land, wood production was estimated only for bad site quality.

Table 28.- Total timber production and incomes generated at final turn (27 years) by 100 trees of C. odorata in a tacotal. Esparza, Costa Rica. 2004.

Figure 12.- Model 3, design of the tacotal enrichment with timber trees in degraded grassland. Esparza, Costa Rica. 2004.

4.3.2.- Establishment costs

Establishment costs for Model 3 were 262.79 USD (table 26). Materials represented the

largest proportion of establishment costs (78.7%). For a detail description see appendix 15.

102

Bad site quality Number of trees/ final turn 100

m3/ ha / final turn 26.80 USD / ha / final turn 1,825.88

1 USD = 430 colones. 1 m3 = 68.13 USD.

4.3.5.- Financial analysis results

4.3.5.1.- NPV, LEV, IRR, B/C results

The investment showed a negative profitability for all indicators NPV (– 401.57), IRR (n.e.), B/C (0.42) and LEV (–99.58)

(table 29). Discounted cash flow showed high investment in the third, fourth and fifth years, related with buying, carrying,

planting, and caring for the trees (figure 13). Net cash flows comparison between with vs without project is presented in

figure 14. It is observed that the net cash flow in the situation with project had a negative profit during 29 years. The

opportunity cost to release degraded land is high, and timber revenues do not cover that cost (more information in appendix

17, 17a, and 18).

Table 29.- Investment profitability. Model 3, one hectare of degraded grassland was changed to tacotal enriched with timber trees of C. odorata. Esparza, Costa Rica. 2004.

Site quality Production of wood for

100 Trees NPV* (USD)

IRR* (%)

B/C LEV** (USD)

Without project 110.50 - - - Bad 28.301 - 401.57 n.e. 0.42 - 99.58

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56 %.

Figure 13.- Model 3, one hectare of degraded grassland was changed to tacotal enriched with

timber trees of C. odorata. Discounted incremental cash flow. Esparza, Costa Rica. 2004.

-300

-200

-100

0

100

200

300

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Years

Net

ben

efit

(U

SD

/ h

a)

Net incremental flow

103

Figure 14.- Model 3, one hectare of degraded grassland was changed to tacotal enriched with timber trees of C. odorata . Net cash flows comparison, “without” vs “with project”. Esparza. Costa Rica. 2004.

4.3.5.2.- PES effect on investment profitability

Table 30 presents the computation for the PES for Model 3, and table 31 shows PES effect on investment profitability.

Results indicate that the PES improves financial indicators, but it was not enough to make profitable the investment.

Investment, under LEV perspective, was positive with PES given that it only considers the change from degraded land to

tacotal and does not take into account livestock opportunity cost. However, it is not enough to cover the cost of the land in

the zone. Figure 15 shows cash flows with PES in both payment schemes (one and two) and without PES. Even though the

PES for changing from degraded grassland to tacotal is one of the highest in the GEF-Project index, it does not cover the

opportunity cost of the change.

Table 30.- PES estimation form Model 3, one hectare of degraded grassland was changed to tacotal enriched with timber trees of C. odorata . Esparza, Costa Rica. 2004.

Land Use Score/ Ha

(A) Degraded Grassland. 0.0 pts (B) Tacotal. 1.4 pts Difference (B – A) 1.4 pts

Payment Time/ years of

PES

USD/point Difference in land use

(points)

Hectares

PES/year/ ha (USD)

Scheme one (four years) 4 75 1.4 1 105 Scheme two (two years) 2 110 1.4 1 154

Table 31.- PES effect in financial indicators. Model 3, one hectare of degraded grassland was

changed to tacotal enriched with timber trees of C. odorata . Esparza, Costa Rica. 2004.

Site quality Payment for Environmental Services

NPV* (USD)

IRR* (%)

B/C LEV** (USD)

Bad Without - 401.57 n.e. 0.42 - 99.58 PES (scheme one) - 85.22 5.3 0.76 443.40

-400

-300

-200

-100

0

100

200

300

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Years

Net

ben

efit

(US

D /

ha)

Without proyect With project

1,826 USD

104

PES (scheme two) - 154.83 4.5 0.63 319.53 *1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56 %.

Figure 15.- Model 3, land use change from degraded pastures to tacotal enriched with timber

trees. PES effect in discounted cash flow, comparison with” vs “without PES”. Esparza, Costa Rica. 2004.

4.3.6.- Model 3a Changing from degraded land to tacotal without incorporating timber trees.

Information presented above indicates that changing from degraded land to tacotal enriched with timber trees of C. odorata

was unprofitable. However, it was necessary to understand what happened with the financial indicators if the model had

one modification; changing the land use from degraded land to tacotal without incorporation of timber trees. It is important

to underline that this model only was developed with the PES effect, because the only output generated by the tacotal were

the environmental services of carbon sequestration and biodiversity.

4.3.6.1.- PES effect on investment profitability

Table 32 shows that the situation without project (livestock activity) had an NPV of 110 USD/ha/year. The situation of

tacotal without payment had an NPV of -110.50 USD/ha/year. In addition, four PES schemes were modeled for the

financial analysis: scheme A (105 USD/year/four years), Scheme B (154 USD/year/two years), scheme C (10 USD/year/30

years), and scheme D (20 USD/year/30 years). The most profitable scenarios were with schemes A and B. Figure 16 shows

the cash flows.

Table 32.- PES effect on investment profitability. Model 3a, change land use from degraded

grassland to tacotal without timber trees. Esparza, Costa Rica. 2004.

Situation PES Number of years NPV* (USD)

-300

-200

-100

0

100

200

300

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Years

Net

ben

efit

(US

D /

ha)

Without PES With PES (scheme one) With PES (scheme two)

105

(USD/ha/year) Without project (livestock activity) 0 0 110.50

Tacotal without payment 0 0 -110.50 Scheme A (4 years) 105 4 248.72 Scheme B (2 years) 154 2 169.65

Scheme C (30 years) 10 30 19.28 Scheme D (30 years) 20 30 149.06

*1 USD = 430 Colones. Discount rate 6.56 %. Figure 16.- Model 3a, land use change from degraded pasture to tacotal without timber trees. PES

effect on discounted cash flow. Esparza, Costa Rica. 2004.

4.4.- Model 4 Timber trees in improved grasslands at perpetuity 4.4.1.- Model description

The objective for Model 4 was to have a SPS under perpetual timber rotation. To do so, twenty trees of C. odorata were

planted every three years (figure 17) in one hectare of improved grassland (B. brizantha) with a distance of 5 m x 10 m.

Two thinnings were applied in years 8 and 15 (10 and 5 trees were cut in each thinning, respectively). The final turn for

each forest rotation (20 trees in each one) was 25 years. The livestock component was three fattening calves growing from

157 to 287 kg in one year. Care of young trees in the first three years was considered with a commercial tree protector.

Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

1 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 5 2 3

4 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 5

5 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 56

7 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 58 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 59

10 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 511 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5

12

13 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 514 20 20 20 20 20 20 20 20 10 10 10 10 10 1015

16 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 517 20 20 20 20 20 20 20 20 10 10 1018

19 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 520 20 20 20 20 20 20 20 2021

-200

20

4060

80100120

140160

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Years

Net

ben

efit

(US

D/h

a)

With PES (one) With PES (two) With PES (three) With PES (four)

106

22 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 5

23 20 20 20 20 2024

25 20 20 20 20 20 20 20 20 10 10 10 10 10 10 10 5 5 5 5 5 5 5 5 5 5 20 20

Figure 17.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three fattening calves. For each rotation, thinnings were developed in years eight and fifteen, and the final turn was in year twenty-five. Esparza, Costa Rica. 2004.

4.4.2.- Establishment costs

Model 4 establishment costs for one rotation are presented in table 33. The total budget was 13.14 USD where the main

expenditure was material (78.7 %) (more details in appendix 19).

Table 33.- Establishment costs of twenty timber trees of C. odorata in one hectare of B. brizantha.

Esparza, Costa Rica. 2004.

Concept USD /each rotation Labor 2.79

Material 10.35 Total 13.14

1 USD = 430 colones

4.4.3.- Operating costs

Model 4 operating costs are presented in table 34. The first three years had the larger incremental operation costs. It was

consequence of the high management in the timber component (weeds cleaning, fertilization, technical assistance,

formation pruning). From year 4 to year 15 the incremental operation costs were lower in comparison with the first years.

Because the level of management was less intensive (formation pruning and weeds cleaning). In addition, two thinnings

were applied in years eight and fifteen. Finally, since year 16 incremental costs were zero, as management in both

situations were similar (more information appendix 19).

Table 34.- Operation costs of twenty timber trees C. odorata planted in one hectare of B. brizantha with three fattening calves. Esparza, Costa Rica. 2004.

Year Situation Concept

1 2 3 4-5 6-7 8 9-10 15 16 -25 Labor 51.3 51.3 51.3 96.2 96.6 50.4 96.6 49.7 476.9 With

Project* Material 84.9 84.9 89.3 169.8 169.8 84.9 169.8 84.9 849.2 Total 136.2 136.2 140.6 266.0 266.4 135.3 266.4 134.6 1,326.1

Labor 47.6 47.6 47.6 95.2 95.2 47.6 95.2 47.6 476.9 Without project+ Material 84.9 84.9 84.9 169.8 169.8 84.9 169.8 84.9 849.2

Total 132.5 132.5 132.5 265 265 132.5 265 132.5 1,326.1 Incremental costs 3.72 3.72 8.14 1.04 1.39 2.79 1.39 2.09 0

1 USD = 430 colones. * timber, livestock, and grassland components. + livestock and grassland component.

4.4.4.-Wood production and income from timber component

107

Wood production and income generated in the three site qualities at final turn (25 years) are presented in table 35. Timber

production and income increment when the site quality improves. For example, timber revenues were 1.28 times and 60%

higher in good and regular site quality, respectively, when they are compared with the revenues in bad site quality (more

information in appendix 20).

Table 35.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted every three years in one hectare of B. brizantha with three fattening calves. Total timber production of one rotation at final turn (25 years) under three different site quality. Esparza, Costa Rica. 2004.

Site quality Bad Regular Good

Number of trees/final turn 5 5 5 m3 /ha /final turn 2.15 3.45 4.90

USD /ha /final turn 146.47 235.04 333.83 1 USD = 430 colones. 1 m3 = 68.13 USD

4.4.5.- Financial analysis

4.4.5.1.- NPV, LEV, IRR, B/C results

Site quality effect on investment profitability is presented in tables 36 and 37. The conversion period included the

implementation and maintenance costs of the SPS (25 years), and the first rotation timber revenues. In all scenarios the

conversion period had negative profit in comparison with the opportunity costs in the first 25 years. However, when the

rotations were calculated at the infinitum all investments had positive profit (5,046.8 and 1,937.06 USD/ha for NPV, and

LEV in bad site quality, respectively).

Table 36.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three fattening calves. Site quality effect on investment profitability. Esparza, Costa Rica. 2004.

Site quality Conversion period from

grass monoculture to SPS (25 years) NPV (USD)

NPV infinitum

(USD)

NPV* Total (USD)

IRR %

B/C

Without project - - 2,167.47 - - Bad 337.89 4,708.91 5,046.80 n.e. 3.64 Regular 355.96 6,057.24 6,413.01 n.e. 3.78 Good 376.16 7,565.13 7,941.30 n.e 3.94

*1 USD = 430 Colones. Discount rate 6.56 % Table 37.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three fattening calves. Site quality effect on investment profitability under LEV perspective. Esparza, Costa Rica. 2004.

Site quality Conversion period from grass monoculture to SPS.

(25 years) NPV (USD)

Forest infinitum

LEV (USD)

Livestock infinitum

LEV (USD)

LEV** Total (USD)

Bad - 230.08 839.87 1,327.27 1,937.06 Regular - 230.08 1,424.09 1,327.27 2,521.28 Good - 230.08 2,077.63 1,327.27 3,174.82

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56 %

108

It is important to know if the cash flow is feasible for the farmers. Figure 18 presents net cash flow in situation “with” vs

“with out” project. It shows that exist a negative incremental cash flow in the first five years. However, beginning at year

six the incremental cash flow turns to be positive. It is consequence of the increment in livestock production by the shadow

effect of trees that reduces heat stress for the animals (more information in appendix 21, 21a, and 22).

Figure 18.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted every three years in one hectare of B. brizantha with three fattening calves. One

rotation net cash flows, comparison “with” vs “without project”. Esparza, Costa Rica. 2004.

4.4.5.2.- PES effect on investment profitability Table 38 presents the PSE computation, and table 39 and figure 19 show the PSE effect on investment profitability and

cash flow, respectively. PES under scheme one improved slightly the profitability of the investment (2% and 5% under

NPV and LEV perspectives). The cash flow showed that PES does not cover all incremental costs in the first five years.

Table 38.- PES estimation for Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted every three years in one hectare of B. brizantha with three fattening calves. Esparza, Costa Rica. 2004.

Land Use Score/ Ha

Improve grassland without trees 0.5 pts Improve Grassland with low density of trees < 30 trees/hectare. 0.9 pts Difference 0.4 pts Scheme Time/ years of

PES USD/point Difference in land use

(points) Hectares

PES/year/ha

(USD) One 4 75 0.4 1 30 Two 2 110 0.4 1 44

Table 39.- PES effect on investment profitability. Model 4, SPS with perpetual timber rotation.

Twenty trees of C. odorata were planted every three years in one hectare of B. brizantha with three fattening calves. Esparza, Costa Rica. 2004.

Site quality Payment for Environmental

Services NPV* (USD)

IRR* (%)

B/C LEV** (USD)

Bad Without 5,046.80 n.e. 3.64 1,937.06 PES (A) 5,149.44 n.e. 9.77 2,039.69 PES (B) 5,126.84 n.e. 6.68 2,017.10

. *1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56 %.

0

50

100150

200

250300

350

400

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Years

Net

ben

efit

(US

D/h

a)

Without project With project

109

Figure 19.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three fattening calves. PES effect in discounted cash flows. Esparza, Costa Rica. 2004.

4.4.5.3.- Sensibility analysis

Effect of different discount rates and wood prices on the investment are presented in tables 40 and 41. The investment was

insensitive to changes in discount rates and in wood prices when NPV was considered. This is due to the profitability of the

livestock component in the situation “with project”. However, the investment was highly sensitive to changes in discount

rate and wood prices when LEV was considered. It is consequence of the land price in the Esparza zone (opportunity cost).

Table 40.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three fattening calves. Sensitivity analysis discount rate effect on investment profitability. Esparza, Costa Rica. 2004.

Discount rate % NPV*

(USD) IRR*

% B/C Discount rate % LEV**

(USD) 6 5,520.57 n.e. 3.87 2 15,291.37 8 4,124.78 n.e. 3.13 3 8,434.18 10 3,274.67 n.e. 2.58 4 5,227.56 12 2,703.22 n.e. 2.15 5 3,449.98 14 2,293.75 n.e. 1.81 6 2,365.68 16 1,986.81 n.e. 1.54 7 1,662.62 18 1,748.81 n.e. 1.33 8 1,187.13 20 1,559.31 n.e. 1.15 9 855.55 22 1,405.17 n.e. 1.01 10 618.91

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.58 % Table 41.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three fattening calves. Sensitivity analysis, wood price effects on investment profitability indicators. Esparza, Costa Rica.

-60

-40

-20

0

20

40

60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Years

US

D/ h

a

Without PES With PES (scheme one) With PES (scheme two)

110

2004.

Wood price per m3 (USD)

NPV* (USD)

IRR* ( % )

B/C Wood price per m3 (USD)

LEV** (USD )

- 100 % 2,782.78 n.e. 3.40 - 20% 1,741.76 - 40 % 4,137.53 n.e. 3.54 - 10% 1,838.53 - 30% 4,363.82 n.e. 3.57 68.134 1,937.06 - 20% 4,590.10 n.e. 3.60 + 20% 2,129.26 - 10% 4,816.39 n.e. 3.62 + 40% 2,324.21 68.134 5,046.80 n.e. 3.64 + 60% 2,517.89

*1 USD = 430 Colones. **Value of the land = 1,918 USD/Hectare. Discount rate 6.56%

4.4.5.4.- Risk analysis Figure 20 shows the result when the investment is modeled with risk in beef price. The investment was highly sensible to

risk in beef prices (37.5% probability of success) when NPV was considered. In contrast, risk in wood price does not affect

investment profitability under NPV perspective (figure 21). When LEV is considered, the investment presents a probability

of 43.13% of success when risk is applied in beef price (figure 22). In contrast, the investment had a probability of success

of 86.12% when wood price was modeled with risk (figure 23).

Figure 20.- Model 4, SPS with

perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three

fattening calves. Investment

risk analysis, distribution for Net Present Value (NPV)

applying risk in beef price. Esparza, Costa Rica.

2004.

Distribution for Net present Value (NPV)

Mean = 9758.78

X <=-100491.025%

X <=249233.9595%

0

1

2

3

4

5

6

-0.5 0 0.5 1 1.5 2 2.5

Values in Millions

Val

ues

in 1

0^ -

6

Distribution for Net Present Value (NPV)

Mean = 5042.917

X <=4985.195%

X <=5099.3895%

0

0.0022222

0.0044444

0.0066666

0.0088888

0.011111

0.0133332

0.0155554

0.0177776

0.0199998

4.96 5.02 5.08 5.14

Values in Thousands

111

Figure 21.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were

planted every three years in one hectare of B. brizantha with three fattening calves. Investment risk analysis, distribution for Net Present Value (NPV) applying risk in wood price. Esparza, Costa Rica. 2004.

Figure 22.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three fattening

calves. Investment risk analysis, distribution for

Land Expected Value (LEV) applying risk in beef price.

Esparza, Costa Rica. 2004.

Distribution for Land Expected Value (LEV)

Mean = 2330.954

X <=056.8726%

X <=200000100%

0

1

2

3

4

5

6

7

-50 0 50 100 150 200

Values in Thousands

Val

ues

in 1

0^ -

5

Distribution for Land Expected Value (LEV)

Mean = 1935.561

X <=1910.855%

X <=1960.0795%

0

0.005

0.01

0.015

0.02

0.025

0.03

1.9 1.92 1.94 1.96 1.98

Values in Thousands

Fr

eque

ncy

112

Figure 23.- Model 4, SPS with perpetual timber rotation. Twenty trees of C. odorata were planted

every three years in one hectare of B. brizantha with three fattening calves. Investment risk analysis, distribution for Land Expected Value (LEV) applying risk in wood price. Esparza, Costa Rica. 2004.

5.- Discussion The financial feasibility of the investment was variable among the models. This was consequence of the different tree

arrangements, the level of the investment, and the level of interaction among the trees, the grass and the livestock

components in the system. In general, investing in the incorporation of timber trees was financially feasible, although site

quality was an important determinant for the feasibility of the investment. Depending on the model, the PES cover a

substantial portion of the establishment costs, although it does not cover the totality of the incremental costs. However, the

PES helps to make feasible the incorporation of timber trees in pastures of bad site quality that otherwise would be

unprofitable. Each model will be discussed below.

5.1.- Model 1, Timber trees in fences

Investment in Model 1 was profitable in all site qualities. These results are in agreement with those presented by Reiche

(1991); Holmann et al. (1992); and Botero et al. (1999). However, the cash flow presented a negative incremental benefit

in the first four years. The PES improved investment profitability, but was not enough to cover the establishment and

maintenance costs of the timber component. This result is in agreement with Gobbi and Casasola (2004) that indicate that

the PES has a marginal contribution on the investment of environmental friendly SPS in livestock farms of Esparza, CR. In

the sensitivity analysis, this investment was robust to changes in wood prices. However, the investment showed a high

sensitivity to changes in the discount rate. When risk in wood price was applied, the investment was very robust. In

contrast, when risk in beef price was applied, the investment was less attractive. Model 1 represents a robust option to

incorporate timber trees in livestock farms in the Esparza zone.

5.2.- Model 2, Timber trees under natural regeneration in native grassland

Freq

uenc

y

113

Implementation costs per tree were the cheapest in this model in comparison with implementation costs in the other

models. This is in agreement with Viana et al. (2001) that indicated that the establishment of timber trees under natural

regeneration has low implementation costs in comparison with other methods. The investment was financially feasible in

regular and good site quality under NPV perspective. However, the investment had a negative profit in bad site quality

when the same indicator was considered. In addition, the investment showed a negative profit in bad and regular site

qualities when LEV was considered. The financial results could be consequence of the reduction in grass biomass by

shadow effect, and the high maintenance costs of natural grassland. The incremental discounted cash flow was negative in

the first five years. The PES made the investment financially feasible in the bad site quality scenario. The investment

showed high sensitivity to changes in the discount rate. For example; investment showed high sensitivity to changes in

wood prices when LEV was considered. In contrast, it presented a high robustness with respect to changes in wood prices

when NPV was considered. In bad site quality the risk analysis suggested that this investment had low probabilities of

success. It is in agreement with farmer’s opinion, because they do not improve natural regeneration in native grasslands.

First, they want to improve grassland and then to promote the natural regeneration of trees. Although under regular and

good site quality the results were the reverse.

5.3.- Model 3, Changing from degraded land to tacotal enrichment with timber trees

The investment in this model was the less profitable one. Financial indicators showed that the enriching the site with

timber trees was not feasible under the scenarios modeled, due to the fact that the degraded land corresponded to a bad

quality site, and thus, timber production was very poor. The opportunity cost to releasing the land from its livestock

activity was higher than the revenues from the timber component. Cash flow analysis showed a negative incremental cost

during 13 years. The PES improved financial indicators but was insufficient to make them profitable and to cover the

investment. The PES could be a good strategy to promote this land use change, but we need a PES sufficient enough to at

least cover the opportunity costs. This view is hold by farmers who would agree to change from degraded land to tacotal if

a PES were applied to perpetuity (lower payment, more years) and covers the opportunity cost of the change.

5.3.1.- Model 3a, Changing from degraded land to tacotal without timber trees

The previous model indicated that the investment to change from degraded grassland to tacotal enriched with timber trees

was unprofitable. However, it was necessary to assess the profitability of changing from degraded land to tacotal without

investing in timber trees. In other words, letting the degraded land to recover and develop tree cover by natural

regeneration. Under this scenario (Model 3a), the land use change was profitable only when the PES developed by the GEF

Project was applied. The discounted amount received by the PES, under schemes one and two, covered 3.26 and 2.54 times

the discounted opportunity cost (livestock activity), respectively. However, the cash flow analysis indicated that the PES

was implemented few years (105 USD by four years and 154 USD by two years in schemes one and two, respectively). In

fact, some farmers mentioned that they did not want to release the degraded land to tacotal, because the cost for cleaning

the tacotal (when PES are stopped) will be higher than the income received by the PES. If the PES covers the opportunity

cost of releasing the land (8.51 USD/ha) and is implemented during more years, it will be more attractive to farmers.

114

Schemes three (10 USD/year) and four (20 USD/year) were developed under this assumption. They showed less

profitability than schemes one and two, but covered the opportunity cost for all years in the cash flow analysis.

5.4.- Model 4, Timber trees in improved grasslands at perpetuity

Investment in timber trees under the assumption of Model 4 was the most confident of all the investment options analyzed

in this study. It is in agreement with results from Carvalho et al. (2001), Grado and Husak (2004), Marlats et al. (1995),

Botero et al. (1999), Grado et al. (2001), and Alonzo and Ibrahim (2001). Financial indicators suggested that the

investment was profitable in bad site quality, even when full opportunity costs were taken into account. The low reduction

of biomass in improved grassland, and the increment in beef production from the comfort proportioned by the canopy

shadow, improved the investment profitability when NPV was considered. Income by livestock component helped to make

profitable the indicator when LEV was considered. If the investment is profitable, the question is why livestock farmers do

not implement this kind of silvopastoral systems in their farms? The answer may be in the cash flow. The cash flow

analysis indicated a negative incremental cost in the first five years. The PES may play an interesting role in the adoption

of this SPS. The PES incremented the investment profitability. However it was not enough to cover the implementation

costs (in agreement with Gobbi and Casasola 2004). If the PES were applied to perpetuity, this kind of SPS would be more

attractive to farmers. The sensibility analysis showed that the investment was highly sensitive to changes in the discount

rate and wood prices when LEV was considered. In contrast the investment was less sensible to changes in both variables

when NPV was considered. The risk analysis indicated that the investment showed high risk associated to beef prices, and

less risk when wood price was modeled. This could be explained by the higher incomes generated by the livestock

component in the discounted cash flow contrasted to those from the timber component.

6.- Conclus ions

i. The incorporation of timber trees under different arrangements in livestock farms in Esparza, Costa Rica was

financially feasible in most of the modeled cases. The financial feasibility of the investment was highly dependant

on the site quality where timber trees were incorporated.

ii. The financial feasibility of implementing silvopastoral systems with timber trees showed differences among the

models. The most profitable investment was Model 4, timber trees at perpetuity in improved grassland, and the less

profitable investment was Model 3, changing from degraded pasture to secondary regeneration forest (tacotal)

enriched with timber trees.

iii. Implementation of timber trees in fences (Model 1) was a profitable model and showed the lowest risk associated

with the investment. The investment was feasible even without applying PES.

iv. Investing on natural regeneration of timber trees in native grassland was profitable in regular and good site quality.

However, the investment showed negative profitability in bad site quality. In the latter case, the situation was due

115

to low livestock productivity, high grassland maintenance costs, and low timber revenues. When PES was applied,

the investment was financially feasible under all site qualities modeled.

v. Investing on changing from degraded grassland to tacotal was only financially feasible when trees were allowed to

growth by natural regeneration and PES were applied. In contrast, actively enriching the degraded pasture with

timber trees was an unattractive option. This situation was due to the fact that income generated by the timber

component was not enough to cover the investment in timber trees and the opportunity cost of releasing the land

from the livestock activity.

vi. Implementing timber trees at perpetuity in improved grasslands had a positive profitability. The first rotation to 25

years (conversion period from grassland monoculture to SPS with timber trees) presented less profitability than its

opportunity cost. However, when the rotations were considered at infinitum, the investment was profitable.

vii. The PES covered, in most cases, a considerable portion of the establishment costs of incorporating trees in

pastures. Although it did not covered all the incremental operating cost. Nonetheless, the PES made the

incorporation of timber trees feasible, even in bad site quality, for all models except for changing from degraded

grassland to tacotal enriched with timber trees (Model 3). The PES contribution was marginal in terms of the cash

flows, although it represented the only income generated by the system when changing from degraded grassland to

tacotal.

7.- Bibliography Abreu de Souza, MH; Ibrahim, M; Jiménez, F. 2004. Trees dispersed on pastures and dairy cattle

performance in the humid tropics of Costa Rica. In Proceedings of the second International Symposium on Silvopastoral Systems: The importance of silvopastoral systems in rural livelihoods to provide ecosystems services. Mérida, Yucatán, México. UAY. p 258 – 261

Acciaresi, H; Ansín, OE; Marlats, RM. 1994. Sistemas silvopastoriles: Efectos de la densidad

arborea en la penetración solar y producción de forraje en rodales de Alamo (Populus deltoides Marsh). Agroforestería en las Américas. 1 (4): 6–9.

Alavalapati, JRR; Shrestha, RK; Stainback, GA; Matta, JR. 2004. Agroforestry development: An

environmental economic perspective. Agroforestry Systems 61: 299-310. Alonzo, Y; Ibrahim, M. 2001. Potential of silvopastoral systems for economic dairy production

in Cayo. Belize and constraints for their adoption. In Proceedings of the second International Symposium on Silvopastoral Systems. Second congress on Agroforestry and livestock production in Latin America. M. Ibrahim (eds.). 2001 San José, CR, CATIE-GTZ-FAO. p 465 – 470.

Alvim, MJ; Paciullo, DSC; Carvalho, MM; Xavier, DF. 2004. Influence of different percentages of

tree cover on the characteristics of a Brachiaria decumbens pasture. In Proceedings of the second International Symposium on Silvopastoral Systems. The importance of silvopastoral systems in rural livelihoods to provide ecosystems services. 2004, Mérida, Yucatán, México. UAY. p 179 – 182.

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9.- Appendix

9.1.- Annual maintenance costs for natural grassland (1 hectare).

Subtotal Activity USD/year

Labor Manual Cleaning 41.88 Weed-killer sprinkling 13.96 Input Weed-killer 30.06 Total 85.9

1 USD= 430 colones

9.2.- Annual maintenance costs for improved grassland (1 hectare).

Activity Subtotal USD/ year

Labor Weed-killer sprinkling 6.98 Input Weed-killer 10.021 TOTAL 17.0

1 USD= 430 colones

9.3.- Annual maintenance costs for degraded grassland (1 hectare).

Activity Subtotal USD/ year

Labor Manual Cleaning 6.98 Weed-killer sprinkling 6.98 Input Weed-killer 10.02 TOTAL 23.98

1 USD= 430 colones

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9.4.- Annual maintenance cost for a weaning calve in a fattening livestock production system. (from 157 to 287 kg).

Input Subtotal USD/year

Labor 13.49

Mineral salt 12.26

Common salt 1.53

Vaccine 1.005

Anti-parasitic 1.008

Anti-parasitic 7.15

Other medicines 2.09

TOTAL 38.53

70

9.5.- Livestock prices from the auction AGAINPA (Pacific Zone Independent Livestock Association). Period January-September 2004. Auction Date Bulls ? Bull $ Bull kg. Cows ? Cow $ Cow kg Heifers ? Heifer $ Heifer kg Young Bulls ? Young Bull $ Young bull kg

1 01/08/2004 40.00 0.91 488.15 37 0.73 431.00 4 0.80 220.25 24 0.90 339.96 2 15/01/2004 7.00 0.89 548.00 18 0.73 425.94 2 0.77 279.50 21 0.88 337.00 3 22/01/2004 11.00 0.96 449.00 26 0.71 394.19 9 0.84 226.56 7 0.86 288.43 4 29/01/2004 14.00 0.97 454.36 32 0.75 411.47 26 0.79 299.85 18 0.89 346.67 5 05/02/2004 29.00 0.90 400.69 26 0.78 419.27 18 0.84 206.56 10 0.89 306.00 6 12/02/2004 36.00 0.91 443.26 37 0.75 424.27 17 0.83 210.00 12 0.85 305.42 7 19/02/2004 23.00 0.94 441.35 36 0.73 412.61 10 0.73 250.90 7 0.90 254.14 8 26/02/2004 21.00 0.93 525.00 29 0.76 402.38 4 0.79 205.25 1 0.95 414.00 9 04/03/2004 14.00 0.90 360.07 35 0.76 395.37 7 0.77 216.71 12 0.96 288.00 10 11/03/2004 14.00 0.94 389.64 18 0.77 412.00 9 0.84 232.22 5 0.92 284.80 11 18/03/2004 9.00 0.94 436.33 39 0.80 399.76 23 0.84 209.78 3 0.90 337.00 12 25/03/2004 16.00 0.92 450.56 30 0.72 421.17 17 0.77 222.12 0 0.00 0.00 13 01/04/2004 10.00 0.89 444.80 14 0.79 433.86 5 0.79 279.80 6 0.88 260.33 14 15/04/2004 15.00 0.93 407.13 34 0.79 402.03 5 0.88 223.03 4 0.98 276.50 15 22/05/2004 28.00 0.97 453.89 18 0.78 397.83 1 0.70 272.00 40 0.99 316.98 16 29/04/2004 30.00 0.93 410.83 21 0.77 393.02 22 0.84 254.86 9 0.86 238.56 17 06/05/2004 16.00 0.94 414.31 29 0.79 377.43 52 0.88 271.43 5 0.83 284.40 18 13/05/2004 5.00 0.91 350.20 27 0.80 381.48 7 0.83 239.86 4 0.96 293.75 19 20/05/2004 2.00 0.93 312.00 28 0.86 424.43 10 0.80 220.90 9 0.95 279.11 20 27/05/2004 23.00 0.91 343.48 30 0.78 387.47 6 0.66 216.00 4 0.72 270.50 21 03/06/2004 21.00 0.94 387.57 64 0.81 376.36 11 0.87 236.09 22 0.98 304.77 22 10/06/2004 38.00 0.98 376.68 39 0.80 380.87 14 0.82 212.87 10 0.99 258.90 23 17/06/2004 28.00 1.00 442.61 49 0.82 399.38 5 0.83 206.00 17 1.01 277.71 24 24/06/2004 33.00 1.01 451.06 47 0.80 382.36 21 0.81 215.43 24 0.84 257.83 25 01/07/2004 24.00 1.00 488.96 47 0.86 401.04 21 0.89 226.00 25 1.00 287.40 26 08/07/2004 22.00 1.00 471.09 48 0.81 387.25 17 0.82 212.35 17 0.88 264.41 27 15/07/2004 17.00 1.03 476.41 46 0.82 427.59 8 0.84 254.75 21 0.92 245.05 28 22/07/2004 42.00 1.03 481.21 72 0.84 402.65 16 0.91 202.88 9 0.96 308.56 29 29/07/2004 5.00 1.07 489.00 38 0.85 411.03 20 0.86 252.00 18 0.94 294.72 30 05/08/2004 60.00 1.00 481.30 56 0.84 416.98 24 0.88 219.90 20 0.96 294.45 31 12/08/2004 23.00 1.05 478.83 41 0.80 424.59 8 0.86 244.75 11 1.00 289.73 32 19/08/2004 58.00 0.99 452.45 47 0.82 428.51 6 0.84 247.50 39 0.90 295.41 33 26/08/2004 22.00 1.03 480.64 21 0.88 435.67 8 0.92 236.50 17 1.02 294.65 34 02/09/2004 46.00 1.01 464.26 64 0.84 396.95 10 0.88 235.60 13 1.01 303.08 35 09/09/2004 25.00 0.98 473.20 86 0.80 409.47 11 0.72 239.55 22 0.96 298.09 36 16/09/2004 32.00 1.00 475.22 36 0.86 422.19 11 0.83 241.82 27 0.97 324.85 37 23/09/2004 40.00 0.96 457.30 36 0.80 420.83 11 0.84 241.27 17 0.91 315.88

1 USD = 430 colones.

71

9.5a .- Livestock prices from the auction AGAINPA information (Pacific Zone Independent Livestock Association). Period January-September 2004. Continue….

Auction Date Male calfs ? Male calf $ Male calf kg Female calfs ? Female calf $ Female calf kg Young Cows ? Young cow $ Young cow kg

1 01/08/2004 32 1.01 164.84 23 0.91 172.70 13 0.85 340.31 2 15/01/2004 11 1.04 159.00 9 0.90 184.56 13 0.81 346.69 3 22/01/2004 31 0.93 168.63 12 0.85 189.83 19 0.86 314.37 4 29/01/2004 17 0.97 170.21 8 0.88 136.75 14 0.83 298.00 5 05/02/2004 8 0.91 165.31 11 0.88 164.18 2 0.88 350.00 6 12/02/2004 12 0.94 172.92 11 0.84 175.45 8 0.84 306.63 7 19/02/2004 21 0.87 127.76 6 0.86 169.75 6 0.76 253.50 8 26/02/2004 7 0.91 146.29 3 0.93 134.67 22 0.82 301.09 9 04/03/2004 22 0.90 134.41 15 0.82 118.60 6 0.86 324.17 10 11/03/2004 18 1.08 151.89 20 0.89 162.70 8 0.84 301.88 11 18/03/2004 5 0.97 175.90 12 0.86 165.75 2 0.86 306.50 12 25/03/2004 4 0.82 137.88 9 0.91 168.67 4 0.82 301.25 13 01/04/2004 8 0.94 115.50 6 0.85 153.33 6 0.84 266.50 14 15/04/2004 10 0.96 111.10 16 0.89 147.78 5 0.86 302.80 15 22/05/2004 10 0.92 154.30 16 0.92 158.44 6 0.89 333.00 16 29/04/2004 17 0.99 148.26 17 0.90 164.09 11 0.83 268.36 17 06/05/2004 6 0.94 165.25 8 0.87 182.75 0 0.00 0.00 18 13/05/2004 1 1.07 123.00 8 0.89 169.31 11 0.86 284.91 19 20/05/2004 14 1.06 164.07 9 0.85 177.78 3 0.72 306.00 20 27/05/2004 12 0.95 140.75 7 0.86 183.71 11 0.86 335.91 21 03/06/2004 18 1.04 143.08 28 0.95 174.09 27 0.88 290.96 22 10/06/2004 13 0.97 142.62 39 0.91 159.59 54 0.86 283.17 23 17/06/2004 20 1.02 138.55 14 0.93 137.04 12 0.88 342.75 24 24/06/2004 26 0.91 166.06 23 0.87 182.48 31 0.85 303.61 25 01/07/2004 10 1.06 166.70 17 0.90 166.82 19 0.89 306.42 26 08/07/2004 20 1.01 159.85 27 0.89 175.65 24 0.84 293.88 27 15/07/2004 30 1.07 156.72 15 0.96 182.37 22 0.84 306.23 28 22/07/2004 24 1.13 158.92 16 1.01 186.13 27 0.88 317.56 29 29/07/2004 28 0.96 182.32 20 0.89 176.53 18 0.89 318.67 30 05/08/2004 26 1.02 184.42 23 0.94 175.85 22 0.85 308.95 31 12/08/2004 26 1.12 179.46 14 0.97 148.00 16 0.86 303.50 32 19/08/2004 38 1.05 182.18 22 0.93 160.11 29 0.87 320.86 33 26/08/2004 29 1.14 172.15 13 0.97 158.08 14 0.94 328.71 34 02/09/2004 77 1.02 162.18 41 0.91 157.63 34 0.91 315.94 35 09/09/2004 65 0.97 188.74 19 0.90 150.79 20 0.86 339.85 36 16/09/2004 16 0.86 154.16 14 0.93 158.04 8 0.87 290.88 37 23/09/2004 45 1.00 192.63 19 0.91 178.92 19 0.88 326.53

1 USD = 430 colones.

72

9.6.- Land use change index used by the GEF- Project to pay for Environmental Services.

Biodiversity Carbon Total Land Use

Points Points Index Crops (annual, grains and tubers) 0 0 0 Degraded grassland 0 0 0 Natural grassland without trees 0.1 0.1 0.2 Improved grassland without trees 0.1 0.4 0.5 Perennial crops (plantain, coffee without shadow) 0.3 0.2 0.5 Natural grassland with low density of trees < 30 trees/ha 0.3 0.3 0.6 Natural grassland enrichment with low density of trees < 30 trees/ha

0.3 0.3 0.6

Living fences 0.3 0.3 0.6 Improved grassland enrichment with low density of trees < 30 trees/ha

0.3 0.4 0.7

Fruits crops (monocrop) 0.3 0.4 0.7 Fodder bank 0.3 0.5 0.8 Improved grassland with low density of trees < 30 trees/ha 0.3 0.6 0.9 Woody fodder bank 0.4 0.5 0.9 Natural grassland with high density of trees > 30 trees/ha 0.5 0.5 1 Fruits crops (diverse) 0.6 0.5 1.1 Living fences multi-stratum 0.6 0.5 1.1 Fodder bank (diverse) 0.6 0.6 1.2 Forest plantations (monocrop) 0.4 0.8 1.2 Coffee with shadow 0.6 0.7 1.3 Improved grassland with high tree density > 30 trees/ha 0.6 0.7 1.3 Guadua (bamboo) forest 0.5 0.8 1.3 Forest plantation (diverse) 0.7 0.7 1.4 Secondary regeneration s 0.6 0.8 1.4 Riparian forest 0.8 0.7 1.5 Intensive silvopastoral systems 0.6 1 1.6 Secondary forest interfered 0.8 0.9 1.7 Secondary forest 0.9 1 1.9 Primary forest 1 1 2

73

9.6a.- Costa Rican Forest Chamber (wood prices).

74

9.7.- Timber component, establishment and maintenance costs for 132 timber trees in living fences. Esparza. Costa Rica. 2004.

Activity

USD

Year 1

Outline and Mark 4.64

Weed killer in the mark 2m of Diameter 10.05

Make holes 4.64

Trees 30.93

Trees freight 7.73

Material distribution 2.32

To plant the trees 2.32

Chemical Fertilizer 2.32

Organic Fertilizer 10.83

Trees (To replant) 1.86

To replant the trees 2.32

Manual control of weeds (three months old) 2.32

Manual control of weeds (six months old) 2.32

Manual control of weeds (Nine months old) 2.32

Formation Pruning 2.32

Technical assistance 15.47

Sub Total 104.70

Year 2

Manual control of weeds ( 1st Trimester ) 2.32

Manual control of weeds ( 2d trimester ) 2.32

Manual control of weeds ( 3rd trimester ) 2.32

Formation pruning 2.32

Chemical Fertilizer 3.25

Organic Fertilizer 18.56

Technical assistance 15.47

Sub Total 46.55

Year 3

Manual control of weeds ( 1st trimester ) 2.32

Manual control of weeds ( 2d trimester ) 2.32

Manual control of weeds ( 3rd trimester ) 2.32

Formation pruning 2.32

Chemical Fertilizer 4.64

Organic Fertilizer 24.74

Technical assistance 15.47

Sub Total 54.13

Years 4 y 5

Formation pruning 6.96

Years 6, 7 8 and 9

Formation pruning 18.58

Year 10

Formation pruning 4.64

First thinning 50% 6.98

Total 242.51

75

9.8.- Timber production from 132 timber trees of C. odorata in fences, according to bad, regular and good

site quality. Esparza, Costa Rica. 2004.

Site Quality

Year Bad

(m 3/Ha) Regular (m 3/Ha)

Good (m 3/Ha)

1 0.00 0.00 0.002 0.06 0.09 0.183 0.72 1.05 2.074 2.46 3.56 7.055 5.12 7.42 14.706 8.35 12.11 23.987 11.85 17.18 34.038 15.41 22.34 44.249 18.90 27.39 54.2610 14.36 20.76 41.2311 16.41 23.73 47.1212 18.35 26.52 52.6713 20.16 29.14 57.8714 21.85 31.59 62.7415 23.44 33.88 67.2816 24.92 36.02 71.5317 26.30 38.02 75.5018 27.59 39.89 79.2119 28.80 41.64 82.6920 29.94 43.28 85.9521 31.01 44.82 89.0122 32.01 46.28 91.8923 32.95 47.64 94.5924 33.84 48.92 97.1425 34.68 50.14 99.55

76

76

9.9.- Cash flow and NPV, IRR and B/C estimation in Model 1, timber trees of C. odorata in fences. Esparza, Costa Rica. 2004.

Discount rate 0.066 Calf 0.986 Discount factor 1/(1+r) 0.938 Waste Cow 0.795 Price of Square meter of wood (Cedrela odorata) /USD 68.13

With Project 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INCOME Sale of beef Young Bull 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8Sale of wood 2362.5PES (Project GEF) 0.0 0.0 0.0 0.0

TOTAL INCOME 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 3138.3

LIVESTOCK PRODUCTION COSTS From calf to young bull 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7

GRASSLAND MAINTENANCE COSTS Improved grass 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 TIMBER TREES INVESTMENT Outline and Mark 4.6 Weed killer 10.1 Make holes 4.6 Trees. 30.9 Freight of the trees 7.7 Material distribution 2.3 To plant the trees 2.3 Chemical Fertilizer 2.3 3.2 4.6 Organic Fertilizer 10.8 18.6 24.7 Trees. (To replant) 1.9 To replant the trees 2.3 Weeds control (1st) 2.3 2.3 2.3 Weeds control (2d) 2.3 2.3 2.3 Weeds control (3rd) 2.3 2.3 2.3 Formation pruning 2.3 2.3 2.3 3.5 3.5 4.6 4.6 4.6 4.6 4.6 Technical assistance 15.5 15.5 15.5 First thinning 7.0

TOTAL COST 237.4 179.2 186.8 136.2 136.2 137.3 137.3 137.3 137.3 144.3 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 NET INCOME WITH PROJECT

538.4 596.5 589.0 639.6 639.6 638.4 638.4 638.4 638.4 631.5 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 3005.6

77

PROJECT

9.9a.- Cash flow and NPV, IRR and B/C estimation in Model 1, timber trees of C. odorata in fences. Esparza, Costa Rica.2004. Cont…

Years WITHOUT PROJECT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INCOME Sale of beef Waste Cow 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 TOTAL INCOME 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 775.8 LIVESTOCK PRODUCTION COSTS From Calf to Young Bull 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7 115.7

GRASSLAND MAINTENANCE COSTS Improved grass 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0 TOTAL COSTS 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 132.7 INCOME WITHOUT PROJECT 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 643.1 NET INCREMENTAL FLOW (WITH VRS WITHOUT PROJECT) -104.7 -46.6 -54.1 -3.5 -3.5 -4.6 -4.6 -4.6 -4.6 -11.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2362.5DISCOUNT RATE 0.9 0.9 0.8 0.8 0.7 0.7 0.6 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2DISCOUNTED NET INCREMENTAL FLOW -98.3 -41.0 -44.7 -2.7 -2.5 -3.2 -3.0 -2.8 -2.6 -6.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 482.5 NET PRESENT VALUE (NPV) 275.6 INTERNAL RATE OF RETURN 0.11 BENEFIT/COST RATIO 2.33

78

9.10.- Cash flow and LEV estimation in Model 1, timber trees of C. odorata in fences. Esparza, Costa Rica. 2004.

Net Present Value Methodology at 12% Years

Age Timber PES Livestock Total 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

0Costs incomes Costs

1 104.7 0.0 177.2 72.5 72.5 77.3 82.3 87.7 93.5 99.6 106.1 113.1 120.5 128.4 136.9 145.8 155.4 165.6 176.5 188.0 200.4 213.5 227.5 242.4 258.3 275.3 293.4 312.6 333.1

2 46.6 0.0 177.2 130.6 130.6 139.2 148.3 158.1 168.5 179.5 191.3 203.8 217.2 231.4 246.6 262.8 280.0 298.4 318.0 338.9 361.1 384.8 410.0 436.9 465.6 496.1 528.7 563.3

3 54.1 0.0 177.2 123.1 123.1 131.1 139.7 148.9 158.7 169.1 180.2 192.0 204.6 218.0 232.3 247.6 263.8 281.1 299.5 319.2 340.1 362.4 386.2 411.6 438.6 467.3 498.0

4 3.5 0.0 177.2 173.7 173.7 185.1 197.3 210.2 224.0 238.7 254.3 271.0 288.8 307.7 327.9 349.4 372.4 396.8 422.8 450.6 480.1 511.6 545.2 580.9 619.0 659.7

5 3.5 177.2 173.7 173.7 185.1 197.3 210.2 224.0 238.7 254.3 271.0 288.8 307.7 327.9 349.4 372.4 396.8 422.8 450.6 480.1 511.6 545.2 580.9 619.0

6 4.6 177.2 172.6 172.6 183.9 195.9 208.8 222.5 237.1 252.6 269.2 286.9 305.7 325.7 347.1 369.9 394.1 420.0 447.6 476.9 508.2 541.5 577.1

7 4.6 177.2 172.6 172.6 183.9 195.9 208.8 222.5 237.1 252.6 269.2 286.9 305.7 325.7 347.1 369.9 394.1 420.0 447.6 476.9 508.2 541.5

8 4.6 177.2 172.6 172.6 183.9 195.9 208.8 222.5 237.1 252.6 269.2 286.9 305.7 325.7 347.1 369.9 394.1 420.0 447.6 476.9 508.2

9 4.6 177.2 172.6 172.6 183.9 195.9 208.8 222.5 237.1 252.6 269.2 286.9 305.7 325.7 347.1 369.9 394.1 420.0 447.6 476.9

10 11.6 177.2 165.6 165.6 176.4 188.0 200.4 213.5 227.5 242.4 258.3 275.3 293.3 312.6 333.1 354.9 378.2 403.0 429.5

11 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4 276.4 294.6 313.9 334.5 356.4 379.8 404.7 431.3

12 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4 276.4 294.6 313.9 334.5 356.4 379.8 404.7

13 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4 276.4 294.6 313.9 334.5 356.4 379.8

14 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4 276.4 294.6 313.9 334.5 356.4

15 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4 276.4 294.6 313.9 334.5

16 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4 276.4 294.6 313.9

17 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4 276.4 294.6

18 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4 276.4

19 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5 259.4

20 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5 243.5

21 0.0 177.2 177.2 177.2 188.8 201.2 214.4 228.5

22 0.0 177.2 177.2 177.2 188.8 201.2 214.4

23 0.0 177.2 177.2 177.2 188.8 201.2

24 0.0 177.2 177.2 177.2 188.8

25 0.0 177.2 177.2 177.2

Capitalized costs 72 208 345 541 750 972 1208 1460 1728 2007 2316 2645 2996 3370 3768 4192 4645 5127 5640 6187 6770 7392 7877 8393 8944

Timber production 0.0 0.0 0.2 0.8 1.7 2.8 4.0 5.1 6.3 4.8 5.5 6.1 6.7 7.3 7.8 8.3 8.8 9.2 9.6 10.0 10.3 10.7 11.0 11.3 11.6

Wood sale income 0.0 1.4 16.4 55.8 116.3 189.7 269.2 350.0 429.2 326.2 372.8 416.7 457.8 496.3 532.3 565.9 597.3 626.7 654.2 680.0 704.2 726.9 748.4 768.6 787.5

Total Future value 72 209 361 597 866 1162 1477 1810 2158 2334 2689 3062 3454 3866 4300 4758 5242 5753 6294 6867 7474 8119 8625 9162 9731

LEV 2317 2503 2638 2732 2796 2629 2658 2678 2690 2696 2698 2698 2695 2691 2685 2679 2672 2665 2604 2549 2498

Liquidation cost 2913 2986 3066 3147 3226 3123 3169 3213 3254 3293 3329 3362 3394 3423 3451 3476 3501 3523 3545 3565 3584

Net capitalized factor 3768 3592 3293 3029 2680 2352 2046 1759 1490 1238 1010 782 567 366 177 0

Immaturity forest worth 2698 2803 2856 2920 2938 2957 2979 3002 3026 3052 3087 3112 3139 3167 3198 3231 3443 3668 3909 4166 4439 4730 5040 5371 5723 6099

Discount rate 6.58 % Price of the Land 1,918 USD

Price of Wood (m3/USD) 68.134 Kilometers 0.4

79

78

79

9.11.- Timber component, establishment and maintenance costs of 200 timber trees from natural regeneration

in a native grassland. Esparza. Costa Rica. 2004.

Activity USD Year 1

Outline and Mark 0.00

Weed killer in the mark 2m of Diameter 15.12

Make holes 0.00

Trees 0.00

Trees freight 0.00

Material distribution 0.00

To plant the trees 0.00

Chemical Fertilizer 3.49

Organic Fertilizer 16.28

Trees (To replant) 0.00

To replant the trees 0.00

Manual control of weeds (three months old) 3.49

Manual control of weeds (six months old) 3.49

Manual control of weeds (Nine months old) 3.49

Formation Pruning 3.49

Technical assistance 23.26

Sub Total 72.09

Year 2

Manual control of weeds ( 1st Trimester ) 3.49

Manual control of weeds ( 2d trimester ) 3.49

Manual control of weeds ( 3rd trimester ) 3.49

Formation pruning 3.49

Chemical Fertilizer 4.88

Organic Fertilizer 27.91

Technical assistance 23.26

Sub Total 70.00

Year 3

Manual control of weeds ( 1st trimester ) 3.49

Manual control of weeds ( 2d trimester ) 3.49

Manual control of weeds ( 3rd trimester ) 3.49

Formation pruning 3.49

Chemical Fertilizer 6.98

Organic Fertilizer 37.21

Technical assistance 23.26

Sub Total 81.40

Years 4 and 5 Formation pruning 20.93

Years 6 and 7 Formation pruning 13.96

Years 8

Formation pruning and first thinning 27.91

Year 9 and 10 Formation pruning 13.96

Year 15 Second thinning 20.93

80

Total 310.71

9.12.- Timber production from 50 timber trees of C. odorata from natural regeneration in native grassland, according to bad, regular and good site quality. Esparza, Costa Rica. 2004.

Site quality Year Bad Regular Good

1 0.00 0.00 0.00 2 0.03 0.05 0.10 3 0.38 0.63 1.18 4 1.28 2.15 4.02 5 2.67 4.48 8.38 6 4.36 7.31 13.68 7 6.18 10.37 19.41 8 7.36 12.34 19.38 9 9.03 15.14 23.76 10 10.63 17.82 27.98 11 12.15 20.37 31.98 12 13.58 22.77 35.74 13 14.91 25.02 39.27 14 16.17 27.12 42.57 15 16.60 27.84 43.68 16 17.65 29.59 46.45 17 18.62 31.24 49.03 18 19.54 32.77 51.43 19 20.40 34.21 53.70 20 21.20 35.56 55.81 21 21.95 36.83 57.80 22 22.66 38.02 59.67 23 23.34 39.13 61.42 24 23.96 40.19 63.08 25 24.55 41.19 64.64

Final turn m3/tree 0.491 0.824 1.29

81

80

81

9.13.- Cash flow and NPV, IRR and B/C estimation in Model 2, timber trees of C. odorata under natural regeneration. Esparza, Costa Rica. 2004.

Discount rate 0.066 Y. Bull 0.901 Price of Square meter of wood (Cedrela odorata) 68.13 Discount factor 1/(1+r) 0.938

Calf 0.986

Change rate 1 USD = 430 colones

Years WITH PROJECT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INCOME Sale Two young bulls 511.8 511.8 511.8 511.8 511.8 568 568 568.3 568.3 568.3 568.3 568.3 568.3 568.3 568. 568 568 568.3 568 568.3 568.3 568.3 568.3 568.3 568.3 Sale of wood 1672. PES (Project GEF) 0.0 0.0 0.0 0.0 Shadow effect 0.0 0.0 0.0 0.3 0.7 0.9 1.2 1.5 2.0 2.5 3.0 3.5 4.0 4.5 3.0 3.4 3.8 4.2 4.9 5.3 5.7 6.1 6.5 7.0 7.4 Disc. Shadow effect 0.0 0.0 0.0 1.4 3.7 4.9 6.9 8.8 11.3 14.0 16.8 19.6 22.6 25.6 17.1 19.3 21.6 23.9 27.6 29.9 32.3 34.8 37.2 39.6 42.1 Subtotal of incomes 511.8 511.8 511.8 511.8 511.8 568 568 568.3 568.3 568.3 568.3 568.3 568.3 568.3 568. 568 568.3 568.3 568 568.3 568.3 568.3 568.3 568.3 568.3 TOTAL OF INCOMES 511.8 511.8 511.8 510.4 508.1 563 561 559.5 556.9 554.3 551.5 548.6 545.7 542.7 551. 548 546 544.3 540 538.3 535.9 533.5 531.1 528.6 2199. LIVESTOCK PRODUCTION COSTS Calf to Young bull 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 Shadow effect 0.0 0.0 0.0 0.3 0.7 0.9 1.2 1.5 2.0 2.5 3.0 3.5 4.0 4.5 3.0 3.4 3.8 4.2 4.9 5.3 5.7 6.1 6.5 7.0 7.4 Disc. Shadow effect 0.0 0.0 0.0 0.2 0.6 0.7 0.9 1.2 1.5 1.9 2.3 2.7 3.1 3.5 2.3 2.6 2.9 3.2 3.7 4.1 4.4 4.7 5.0 5.4 5.7 Sub. livestock costs 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 Total Livestock costs 77.1 77.1 77.1 76.8 76.5 76.4 76.1 75.9 75.5 75.2 74.8 74.4 74.0 73.6 74.7 74.4 74.1 73.8 73.3 73.0 72.7 72.3 72.0 71.7 71.4 GRASSLAND MAINTENANCE COSTS Natural grass 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 Bought Two calfs 309.6 309.6 309.6 309.6 309.6 309 309 309.6 309.6 309.6 309.6 309.6 309.6 309.6 309. 309. 309. 309.6 309 309.6 309.6 309.6 309.6 309.6 309.6 IMBER TREES INVESTMENT Outline and Mark 0.0 Weed killer 15.1 Make holes 0.0 Trees. 0.0 Freight of the trees 0.0 Material distribution 0.0 To plant the trees 0.0 Chemical Fertilizer 3.5 4.9 7.0 Organic Fertilizer 16.3 27.9 37.2 Trees. 0.0 To replant the trees 0.0 weeds control (1 st) 3.5 3.5 3.5 weeds control (2d) 3.5 3.5 3.5 weeds control (3 rd) 3.5 3.5 3.5 Formation pruning 3.5 3.5 3.5 5.2 5.2 7.0 7.0 7.0 7.0 7.0 Technical assistance 23.3 23.3 23.3 First thinning 20.9 Second thinning 20.9 TOTAL COSTL 544.6 542.5 553.9 477.5 477.2 478 478 499.2 478.0 477.6 470.3 469.9 469.5 469.1 491. 469. 469 469.3 468 468.5 468.1 467.8 467.5 467.2 466.8 INCOME WITH -32.8 -30.8 -42.1 32.8 30.9 84.5 82.8 60.3 79.0 76.7 81.2 78.8 76.2 73.6 60.0 79.0 77.1 75.1 71.9 69.8 67.8 65.7 63.6 61.5 1732.

82

9.13a.- Cash flow and NPV, IRR and B/C estimation in Model 2, timber trees of C. odorata under natural regeneration. Esparza, Costa Rica. 2004.

Years

WITHOUT PROJECT

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

INCOME Two young bulls 516.6 516.6 516.6 516.6 516.6 516.6 516.6 516.6 516.6 516 516.6 516 516.6 516.6 516 516.6 516 516.6 516.6 516 516.6 516.6 516.6 516.6 516.6

INCOMES TOTAL 516.6 516.6 516.6 516.6 516.6 516.6 516.6 516.6 516.6 516 516.6 516 516.6 516.6 516 516.6 516 516.6 516.6 516 516.6 516.6 516.6 516.6 516.6

PRODUCTION COSTS - LIVESTOCK Maintenance costs 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 77.1 Bought of two calf 309.6 309.6 309.6 309.6 309.6 309.6 309.6 309.6 309.6 309 309.6 309 309.6 309.6 309 309.6 309 309.6 309.6 309 309.6 309.6 309.6 309.6 309.6 MAINTENANCE COSTS - GRASSLAND Natural grass 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9 85.9

TOTAL COST 472.5 472.5 472.5 4725 472.5 472.5 472.5 472.5 472.5 472 472.5 472 472.5 472.5 472 472.5 472 472.5 472.5 472 472.5 472.5 472.5 472.5 472.5

NET FLOW WITHOUT PROJECT

44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1 44.1

NET INCREMENTAL FLOW (WITH VRS WITHOUT PROJECT)

-76.9 -74.8 -86.22 -11.2 -13.20 40.45 38.69 16.18 34.91 32.5 37.16 34.6 32.15 29.57 15.9 34.96 32.9 30.99 27.83 25.7 23.70 21.62 19.52 17.40 1688.

DISCOUNT RATE 0.94 0.88 0.83 0.78 0.73 0.68 0.64 0.60 0.56 0.53 0.50 0.47 0.44 0.41 0.39 0.36 0.34 0.32 0.30 0.28 0.26 0.25 0.23 0.22 0.20 DISCOUNTED INCREMENTAL FLOW

-72.1 -65.9 -71.26 -8.7 -9.61 27.63 24.80 9.73 19.70 17.2 18.47 16.1 14.08 12.15 6.1 12.65 11.2 9.87 8.32 7.23 6.24 5.34 4.53 3.79 344.8

NET PRESENT VALUE (NPV) 352.47 BENEFIT/COST RATIO 2.55 INTERNAL RATE OF RETURN 0.13

83

9.14.- Cash flow and LEV estimation in Model 2, timber trees of C. odorata from natural regeneration in native grassland. Esparza, Costa Rica. 2004.

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Age

Timber Costs

Livestock Incomes

PES Incomes Total

Costs Total

1 72.1 39.2 0.0 39.2 -32.8 -33 -35 -37 -40 -42 -45 -48 -51 -55 -58 -62 -66 -70 -75 -80 -85 -91 -97 -103 -110 -117 -125 -133 -142 -151

2 70.0 39.2 0.0 39.2 -30.8 -31 -33 -35 -37 -40 -42 -45 -48 -51 -54 -58 -62 -66 -70 -75 -80 -85 -91 -97 -103 -110 -117 -124 -133

3 81.4 39.2 0.0 39.2 -42.1 -42 -45 -48 -51 -54 -58 -62 -66 -70 -75 -80 -85 -90 -96 -103 -109 -116 -124 -132 -141 -150 -160 -171

4 5.2 38.0 0.0 38.0 32.8 33 35 37 40 42 45 48 51 55 58 62 66 70 75 80 85 91 97 103 110 117 125

5 5.2 36.1 36.1 30.9 31 33 35 37 40 42 45 48 51 55 58 62 66 71 75 80 85 91 97 103 110

6 7.0 91.5 91.5 84.5 85 90 96 102 109 116 124 132 141 150 160 170 181 193 206 219 234 249 265 283

7 7.0 89.7 89.7 82.8 83 88 94 100 107 114 121 129 138 147 156 166 177 189 201 215 229 244 260

8 27.9 88.2 88.2 60.3 60 64 68 73 78 83 88 94 100 107 114 121 129 138 147 156 167 177

9 7.0 86.0 86.0 79.0 79 84 90 96 102 109 116 123 131 140 149 159 169 180 192 205 218

10 7.0 83.6 83.6 76.7 77 82 87 93 99 105 112 120 127 136 145 154 164 175 187 199

11 0.0 81.2 81.2 81.2 81 87 92 98 105 112 119 127 135 144 153 163 174 186 198

12 0.0 78.8 78.8 78.8 79 84 89 95 102 108 115 123 131 140 149 158 169 180

13 0.0 76.2 76.2 76.2 76 81 87 92 98 105 112 119 127 135 144 153 163

14 0.0 73.6 73.6 73.6 74 78 84 89 95 101 108 115 122 130 139 148

15 20.9 81.0 81.0 60.0 60 64 68 73 77 83 88 94 100 106 113

16 0.0 79.0 79.0 79.0 79 84 90 96 102 109 116 123 131 140

17 0.0 77.1 77.1 77.1 77 82 88 93 99 106 113 120 128

18 0.0 75.1 75.1 75.1 75 80 85 91 97 103 110 117

19 0.0 71.9 71.9 71.9 72 77 82 87 93 99 105

20 0.0 69.8 69.8 69.8 70 74 79 85 90 96

21 0.0 67.8 67.8 67.8 68 72 77 82 87

22 0.0 65.7 65.7 65.7 66 70 75 79

23 0.0 63.6 63.6 63.6 64 68 72

24 0.0 61.5 61.5 61.5 61 66

25 0.0 59.4 59.4 59.4

59

Capitalized costs -33 -66 -112 -87 -62 19 103 170 260 354 458 567 680 799 911 1050 1196 1349 1510 1679 1857 2044 2178 2321 2473

Timber production 0 0 0 1 3 4 6 7 9 11 12 14 15 16 17 18 19 20 20 21 22 23 23 24 25

Wood sale income 0 2 26 87 182 297 421 501 615 724 828 925 1016 1102 1131 1202 1269 1331 1390 1444 1496 1544 1590 1632 1673

Total future value -33 -64 -87 0 120 316 524 671 875 1078 1286 1492 1697 1900 2042 2252 2464 2681 2900 3123 3352 3588 3768 3954 4146

LEV 322 680 936 1013 1134 1214 1271 1305 1321 1325 1281 1277 1267 1254 1237 1218 1198 1178 1138 1100 1064

Liquidation costs 1463 1578 1703 1783 1896 2005 2109 2206 2297 2383 2412 2484 2550 2612 2671 2726 2777 2825 2871 2914 2954

Net capitalized factor 799 874 940 1024 963 908 767 638 550 441 343 244 155 74 0

Immaturity forest worth 1325 1350 1467 1603 1678 1759 1795 1835 1898 1949 2005 2060 2121 2189 2263

Discount rate 0.0656

Price of Wood m3/USD 68.134

84

9.15.- Timber component, establishment and maintenance costs of 400 timber trees of C. odorata in a degraded grassland. Esparza. Costa Rica. 2004.

Activity Total

Year 1 Outline and Mark 13.95

Weed killer in the mark 30.23Make holes 13.95

Trees. 93.02Trees freight 23.26

Material distribution 6.98To plant the trees 6.98

Chemical Fertilizer 6.98Organic Fertilizer 32.56

Trees. (to replant) 5.58To replant the trees 6.98Weeds control (tree months old) 6.98

Weeds control (six months old) 6.98Weeds control (Nine months old) 6.98

Formation Pruning 6.98Technical assistance 46.51

Sub total 314.88

Year 2 Weeds control ( 1st ) 6.98Weeds control ( 2 d ) 6.98Weeds control ( 3rd ) 6.98Formation pruning 6.98Chemical Fertilizer 9.77Organic Fertilizer 55.81Technical assistance 46.51

Sub Total 140.00

Year 3 Weeds control ( 1st ) 6.98Weeds control ( 2 d ) 6.98Weeds control ( 3 rd ) 6.98Formation pruning 6.98Chemical Fertilizer 13.95Organic Fertilizer 74.42Technical assistance 46.51

Sub Total 162.79

Year 4 and 5 Formation pruning 20.94

Year 6 and 7 Formation pruning 27.90

Year 8 Formation pruning 13.95First thinning 50% 200 27.91

Year 9 and 10 Formation pruning 27.90

Year 15 Second thinning 25% 100 27.91

Total 764.19

85

9.16.- Timber production from a tacotal enrichment with 100 timber trees of C. odorata. Esparza, Costa Rica. 2004.

Year Timber production

m3/100 trees 1 02 0.0383 0.4494 1.5275 3.1836 5.1977 7.3728 8.0389 9.858

10 11.60811 13.26612 14.82313 16.29214 17.66115 17.34116 18.43917 19.45718 20.41619 21.31320 22.15521 22.94522 23.68823 24.38424 25.03925 25.66326 26.25127 26.801

Final turn m3/tree 0.28 Source: Software Silvia©

86

87

9.17.- Cash flow and NPV, IRR and B/C estimation in Model 3, tacotal enriched with 100 timber trees of C. odorata. Esparza, Costa Rica. 2004.

Change rate 1 USD = 430 colones Beef price Discount rate 0.0656 Calf 0.986 Price of Square meter of wood (Cedrela odorata) USD….68.13

Discount factor 1/(1+r)0.938 Young Bull 0.901 Years

WITH PROJECT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

INCOME Sale of beef

Calf Male 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Sale of wood 1826.1 PES (Project GEF) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

TOTAL INCOMES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1826.1

LIVESTOCK PRODUCTION COSTS Maintenance costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Bought One calf 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Livestock cost 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

GRASSLAND MAINTENANCE COSTS

Degraded grass 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

TIMBER TREES INVESTMENT Outline and Mark 14.0 Weed killer 30.2 Make holes 14.0 Trees. 93.0 Freight of the trees 23.3 Material distribution 7.0 To plant the trees 7.0 Chemical Fertilizer 7.0 9.8 14.0 Organic Fertilizer 32.6 55.8 74.4 Trees to replant 5.6 To replant the trees 7.0 Weeds control (1st) 7.0 7.0 7.0 Weeds control (2d) 7.0 7.0 7.0 Weeds control (3rd) 7.0 7.0 7.0 Formation pruning 7.0 7.0 7.0 10.5 10.5 14.0 14.0 14.0 14.0 14.0 Technical assistance 46.5 46.5 46.5 First thinning 27.9

88

Second thinning 27.9

COSTS TOTAL 0.0 0.0 314.9 140.0 162.8 10.5 10.5 14.0 14.0 41.9 14.0 14.0 0.0 0.0 0.0 0.0 27.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

INCOME WITH PROJECT 0.0 0.0 -314.9 -140.0 -162.8 -10.5 -10.5 -14.0 -14.0 -41.9 -14.0 -14.0 0.0 0.0 0.0 0.0 -27.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1826.1

9.17a.- Cash flow and NPV, IRR and B/C estimation in Model 3, tacotal enriched with 100 timber trees of C. odorata. Esparza, Costa Rica. 2004. Cont…

Years WITHOUT PROJECT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

INCOMES Sale of beef

Calf Male 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2

TOTAL OF INCOMES 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2 129.2

LIVESTOCK PRODUCTION COSTS Maintenance costs 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 Purchase one calf 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4 77.4

GRASSLANDS MAINTENANCE COSTS

Degraded pasture 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 COST TOTAL 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6 INCOME WITHOUT PROJECT 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.5 NET INCREMENTAL FLOW (WITH VRS WITHOUT PROJECT) -8.5 -8.5 -323.4 -148.5 -171.3 -19.0 -19.0 -22.5 -22.5 -50.4 -22.5 -22.5 -8.5 -8.5 -8.5 -8.5 -36.4 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 1817.5DISCOUNT RATE 0.9 0.9 0.8 0.8 0.7 0.7 0.6 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1DISCOUNTED NET INCREMENTAL FLOW -8.0 -7.5 -267.3 -115.2 -124.7 -13.0 -12.2 -13.5 -12.7 -26.7 -11.2 -10.5 -3.7 -3.5 -3.3 -3.1 -12.4 -2.7 -2.5 -2.4 -2.2 -2.1 -2.0 -1.9 -1.7 -1.6 -1.5 -1.4 -1.3 270.2

NET PRESENT VALUE (NPV) -401.6INTERNAL RATE OF RETURN #¡NUM!

BENEFIT/COST RATIO 0.402

89

9.18.- Cash flow and LEV estimation in Model 3, tacotal enriched with 100 timber trees of C. odorata. Esparza, Costa Rica. 2004.

Years Age Timber PES Total 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

0 Costs Costs 1 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 02 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 03 314.9 0.0 -314.9 -315 -336 -358 -381 -406 -433 -461 -491 -523 -558 -594 -633 -675 -719 -766 -817 -870 -927 -988 -1053 -1122 -1196 -12744 140.0 0.0 -140.0 -140 -149 -159 -169 -181 -192 -205 -218 -233 -248 -264 -282 -300 -320 -341 -363 -387 -412 -439 -468 -499 -5325 162.8 0.0 -162.8 -163 -173 -185 -197 -210 -224 -238 -254 -271 -288 -307 -327 -349 -372 -396 -422 -450 -479 -511 -544 -5806 10.5 0.0 -10.5 -10 -11 -12 -13 -13 -14 -15 -16 -17 -19 -20 -21 -22 -24 -25 -27 -29 -31 -33 -357 10.5 0.0 -10.5 -10 -11 -12 -13 -13 -14 -15 -16 -17 -19 -20 -21 -22 -24 -25 -27 -29 -31 -338 14.0 0.0 -14.0 -14 -15 -16 -17 -18 -19 -20 -22 -23 -25 -26 -28 -30 -32 -34 -36 -39 -419 14.0 0.0 -14.0 -14 -15 -16 -17 -18 -19 -20 -22 -23 -25 -26 -28 -30 -32 -34 -36 -39

10 41.9 0.0 -41.9 -42 -45 -48 -51 -54 -58 -61 -65 -70 -74 -79 -84 -90 -96 -102 -10911 14.0 0.0 -14.0 -14 -15 -16 -17 -18 -19 -20 -22 -23 -25 -26 -28 -30 -32 -3412 14.0 0.0 -14.0 -14 -15 -16 -17 -18 -19 -20 -22 -23 -25 -26 -28 -30 -3213 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0 0 0 014 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0 0 015 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0 016 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 017 27.9 0.0 -27.9 -28 -30 -32 -34 -36 -38 -41 -44 -4618 0.0 0.0 0.0 0 0 0 0 0 0 0 019 0.0 0.0 0.0 0 0 0 0 0 0 020 0.0 0.0 0.0 0 0 0 0 0 021 0.0 0.0 0.0 0 0 0 0 022 0.0 0.0 0.0 0 0 0 023 0.0 0.0 0.0 0 0 024 0.0 0.0 0.0 0 025 0.0 0.0 0.0 0

Capitalized costs 0 0 -315 -476 -670 -724 -782 -847 -917 -1019 -1099 -1185 -1263 -1346 -1434 -1529 -1657 -1765 -1881 -2005 -2136 -2276 -2426 -2585 -2754Timber production 0 0 0 2 3 5 7 8 10 12 13 15 16 18 17 18 19 20 21 22 23 24 24Wood sale income 0 3 31 104 217 354 502 548 672 791 904 1010 1110 1203 1182 1256 1326 1391 1452 1510 1563 1614 1661 1706 1749Total future worth 0 3 -284 -371 -453 -370 -280 -299 -245 -228 -196 -176 -153 -143 -253 -272 -331 -374 -429 -495 -573 -662 -764 -879 -1006

LEV -1210 -797 -499 -452 -318 -257 -193 -153 -119 -99.58 -159 -154 -170 -175 -183 -193 -205 -217 -231 -244 -258

Liquidation cost 58 195 344 389 513 632 745 851 951 1045 1023 1098 1167 1232 1293 1351 1405 1455 1503 1547 1590

90

Net capitalized factor -1346 -1346 -1346 -713 -448 -160 -143 -126 -106 -87 -33 -16 0 0 0 Immaturity forest worth -99.6 -133 286 457 497 539 588 639 721 781 845 901 960 901 960 Discount rate % 6.58

Wood price m3 / USD 68.13

89

9.19.- Timber component, establishment and maintenance costs for 20 timber trees of C. odorata

in improved grassland. Esparza. Costa Rica. 2004.

Activity Total Year 1 Outline and Mark 0.70Weed killer in the mark 2m of Diameter 1.51Make holes 0.70Trees. 4.65Trees freight 1.16Material distribution 0.35To plant the trees 0.35Chemical Fertilizer 0.35Organic Fertilizer 1.63Trees. (to replant) 0.28To replant the trees 0.35ArborGard+? Tree Trunk Protector 29.00Weeds control (three months old) 0.35Weeds control (six months old) 0.35Weeds control (Nine months old) 0.35Formation Pruning 0.35Chemical Fertilizer 0.00Organic Fertilizer 0.00Technical assistance 2.33Sub Total 44.74Year 2 Weeds control ( 1st ) 0.35Weeds control ( 2 d ) 0.35Weeds control ( 3rd ) 0.35Formation pruning 0.35Chemical Fertilizer 0.49Organic Fertilizer 2.79Technical assistance 2.33Sub Total 7.00Year 3 Weeds control ( 1st ) 0.35Weeds control ( 2 d ) 0.35Weeds control ( 3 rd ) 0.35Formation pruning 0.35Chemical Fertilizer 0.70Organic Fertilizer 3.72Technical assistance 2.33Sub Total 8.14Year 4 and 5 Formation pruning 1.04Year 6 an 7 Formation pruning 1.39Year 8 Formation pruning 0.69First thinning 50% 10 trees 2.09Year 9 and 10 Formation pruning 1.39Year 15 Second thinning 25% 5 trees 2.09Costs total 68.60

90

9.20.- Timber production from 5 timber trees of C. odorata in an improved grassland. Esparza, Costa Rica, 2004.

Site quality Year Bad Regular Good

1 0.000 0 0

2 0.002 0.003 0.005

3 0.029 0.046 0.066

4 0.099 0.159 0.226

5 0.207 0.332 0.472

6 0.338 0.542 0.771

7 0.480 0.77 1.094

8 0.619 0.993 1.412

9 0.759 1.217 1.73

10 0.895 1.435 2.037

11 1.023 1.64 2.33

12 1.142 1.832 2.602

13 1.256 2.013 2.86

14 1.362 2.183 3.101

15 1.453 2.332 3.311

16 1.545 2.478 3.521

17 1.631 2.616 3.716

18 1.711 2.744 3.898

19 1.786 2.864 4.071

20 1.857 2.977 4.231

21 1.922 3.083 4.381

22 1.985 3.185 4.523

23 2.044 3.277 4.656

24 2.100 3.366 4.781

25 2.151 3.449 4.901

Final turn m 3/tree 0.43 0.69 0.98

1

9.21.- Cash flow and NPV, IRR and B/C estimation in Model 4, improved grasslands with

timber trees of C. odorata at perpetuity. Esparza, Costa Rica. 2004

Change rate 1 USD = 430 colones Discount rate 0.0656 Beef Price Price of Square meter of wood (Cedrella odorata) 68.13 Discount factor 1/(1+r) 0.938 Calf 0.986 Young bull 0.901

Years WITH PROJECT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16INCOME Sale of beef

Three Young Bulls 768.00 768.00 768.00 768.00 768.00 853.34 853.34 853.34 853.34 853.34 853.34 853.34 853.34 853.34 853 853.34

Sale of wood 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

PES (Project GEF) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Shadow effect (%) 0.00 0.00 0.01 0.01 0.01 0.02 0.03 0.03 0.03 0.04 0.04 0.04 0.05 0.06 0.06 0.06

Disc. Shadow effect 0.00 0.02 0.05 0.07 0.11 0.18 0.22 0.28 0.26 0.32 0.38 0.37 0.43 0.50 0.48 0.49

Subtotal of incomes 768.00 768.00 768.00 768.00 768.00 853.34 853.34 853.34 853.34 853.34 853.34 853.34 853.34 853.34 853 853.34

INCOMES TOTAL 768.00 767.98 767.96 767.93 767.89 853.16 853.12 853.06 853.08 853.02 852.95 852.97 852.91 852.84 852 852.85LIVESTOCK PRODUCTION COSTS

Maintenance costs 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115 115.68

Shadow effect (%) 0.00 0.00 0.01 0.01 0.01 0.02 0.03 0.03 0.03 0.04 0.04 0.04 0.05 0.06 0.06 0.06

Disc. Shadow effect 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.04 0.03 0.04 0.05 0.05 0.06 0.07 0.07 0.07

Subtotal livestock costs 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115 115.68

Bought three calfs 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464 464.41

Livestock total costs 580.09 580.08 580.08 580.08 580.07 580.06 580.06 580.05 580.05 580.04 580.04 580.04 580.03 580.02 580 580.02

GRASSLANDS MAINTENANCE COSTS Improved grass 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99

INVERSION - TIMBER TREES

Timber component 44.74 7.00 8.14 45.27 7.52 8.84 45.97 10.31 9.53 46.66 10.31 9.53 46.66 10.31 11.63 46.66

COSTS TOTAL 641.82 604.08 605.21 642.34 604.59 605.89 643.02 607.36 606.58 643.70 607.34 606.57 643.69 607.33 608 643.68

INCOME WITH PROJECT

126.18 163.91 162.74 125.59 163.30 247.27 210.10 245.70 246.50 209.32 245.61 246.41 209.22 245.51 244 209.17

9.21a.- Cash flow and NPV, IRR and B/C estimation in Model 4, improved grasslands with timber trees of C. odorata at perpetuity. Esparza, Costa Rica. 2004. Cont…

Years

WITHOUT PROJECT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

INCOMES

2

TOTAL OF INCOMES 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76 775.76

LIVESTOCK PRODUCTION COSTS

From Calf to Young Bull

115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68 115.68

Bought three male calfs

464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41 464.41

GRASSLANDS MAINTENANCE COSTS

Improved grass 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99 16.99

COSTS TOTAL 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08 597.08

NET FLOW WITHOUT PROJECT

178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68 178.68

NET INCREMENTAL FLOW (WITH VRS WITHOUT PROJECT)

-52.50 -14.77 -15.94 -53.09 -15.38 68.59 31.42 67.02 67.82 30.64 66.93 67.73 30.54 66.83 65.53 30.49

DISCOUNT RATE 0.94 0.88 0.83 0.78 0.73 0.68 0.64 0.60 0.56 0.53 0.50 0.47 0.44 0.41 0.39 0.36DISCOUNTED NET INCREMENTAL FLOW

-49.27 -13.01 -13.17 -41.17 -11.19 46.85 20.14 40.31 38.28 16.23 33.27 31.60 13.37 27.46 25.27 11.03

NET PRESENT VALUE (NPV) 337.90 Incomes - Costs INTERNAL RATE OF RETURN 0.22

BENEFIT/COST RATIO 3.64

Incomes 176.87 Costs 132.03 Difference 308.90

NPV infinite 4708.9

NPV total 5046.8

9.22.- Cash flow and LEV estimation in Model 4, improved grasslands with timber trees of C. odorata at perpetuity. Esparza, Costa Rica. 2004.

Age Timber PES Total 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 151.0 44.7 0.0 -44.7 -44.7 -47.7 -50.8 -54.1 -57.7 -61.5 -65.5 -69.8 -74 -79.3 -84.5 -90.0 -95.9 -102.2 -108.92.0 7.0 0.0 -7.0 -7.0 -7.5 -7.9 -8.5 -9.0 -9.6 -10.2 -10 -11.6 -12.4 -13.2 -14.1 -15.0 -16.03.0 8.1 0.0 -8.1 -8.1 -8.7 -9.2 -9.8 -10.5 -11.2 -11 -12.7 -13.5 -14.4 -15.4 -16.4 -17.44.0 0.5 0.0 -0.5 -0.5 -0.6 -0.6 -0.6 -0.7 -0.7 -0.8 -0.8 -0.9 -0.9 -1.0 5.0 0.5 0.0 -0.5 -0.5 -0.6 -0.6 -0.6 -0.7 -0.7 -0.8 -0.8 -0.9 -0.9 6.0 0.7 0.0 -0.7 -0.7 -0.7 -0.8 -0.8 -0.9 -1.0 -1.0 -1.1 -1.2 7.0 0.7 0.0 -0.7 -0.7 -0.7 -0.8 -0.8 -0.9 -1.0 -1.0 -1.1 8.0 2.8 0.0 -2.8 -2.8 -3.0 -3.2 -3.4 -3.6 -3.8 -4.1 9.0 0.7 0.0 -0.7 -0.7 -0.7 -0.8 -0.8 -0.9 -1.0

10.0 0.7 -0.7 -0.7 -0.7 -0.8 -0.8 -0.9 11.0 0.0 0.0 0.0 0.0 0.0 0.0 12.0 0.0 0.0 0.0 0.0 0.0 13.0 0.0 0.0 0.0 0.0 14.0 0.0 0.0 0.0 15.0 2.1 -2.1 16.0 0.0 0.0 17.0 0.0 0.0 18.0 0.0 0.0 19.0 0.0 0.0 20.0 0.0 0.0

3

21.0 0.0 0.0 22.0 0.0 0.0 23.0 0.0 0.0 24.0 0.0 0.0 25.0 0.0 0.0

Capitalized Costs -44.7 -54.7 -66.4 -71.3 -76.5 -82.2 -88.3 -96.9 -103 -111.4 -118.8 -126.5 -134.8 -143.7 -155.2Timber production 0.0 0.0 0.0 0.1 0.2 0.3 0.5 0.6 0.8 0.9 1.0 1.1 1.3 1.4 Wood sale income 0.0 0.1 2.0 6.7 14.1 23.0 32.7 42.2 51 61.0 69.7 77.8 85.6 92.8 99.0Total future worth -44.7 -54.5 -64.4 -64.5 -62.4 -59.2 -55.6 -54.7 -52 -50.5 -49.0 -48.7 -49.3 -50.9 -56.2

LEV -166.8 -127.5 -99.2 -82.6 -67 -56.8 -48.5 -42.6 -38.4 -35.5 -35.3Liquidation costs -21.2 -12.2 -2.6 6.9 16 25.7 34.4 42.5 50.3 57.5 63.7Net capitalized factor -155.2 -46.3 -30.3 -12.9 -11.8 -10.8 -9.6 -8.4 -4.1 -3 -2.1 -2.1 -2.1 -2.1 -2.1 Immaturity forest worth -35.3 7.2 14.6 23.7 25.8 28.0 30.6 33.3 38.2 41 44.9 47.8 50.9 54.3 57.8 63.7

Discount rate % 6.56 TIMBER COSTS -44.7 -7.0 -8.1 -45.3 -7.5 -8.8 -46 -10.3 -9.5 -46.7 -10.3 -9.5 -46.7Wood price m3/USD 68.1

NPV TIMBER COMP. -230 VET VET LIVESTOCK 2167.1 VET SPS 1937.1

Forest VET Livestock VET

Wood Production Bought three Maint. Livestock Incomes

M3/ tree

Num. Trees

M3 total

USD income

USD Costs

Net income

VET Forest Male calfs Costs Young Bulls

Net income

Bad 0.4 6.8 2.9 199.3 26.4 172.9 2635.8 464.4 115.7 853.3 273.2 Regular 0.7 6.8 4.7 319.6 26.4 293.2 4469.2 Good 1.0 6.8 6.7 454.1 26.4 427.7 6520.2

Forest VET Livestock VET

2635.8 4165.4

Discounted Year 18 2167.1